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Morningstar | Citrix Benefits from Increasing Complexity of Virtualized Environments

Citrix Systems has long carried the torch for virtual desktop infrastructure. We think the economics of VDI remain beneficial, as highly regulated and security-sensitive verticals such as government, healthcare, and financial services continue to deploy these complex, deeply integrated products across the IT infrastructure, which we believe serves as the backbone of Citrix's economic moat. Desktop virtualization has limited growth opportunities, while application delivery and virtualization face threats from new companies and new technologies.Citrix faces a market whose preferences do not align with the legacy virtual desktop business. Employees are valuing applications over full-desktop experiences, particularly as the use of mobile devices increases in the enterprise. This creates a limited incremental opportunity for desktop virtualization but a potentially large one for Citrix's XenApp and XenMobile products. As the global workforce becomes more mobile, organizations are becoming increasingly wary of pushing apps and data to vulnerable endpoints, choosing instead to house them in a heavily securitized data center while users access them remotely, leading to Citrix reaping the benefit in its core revenue stream.However, the cost savings of virtualization are challenging to triangulate. Perceived savings on hardware management and refresh are largely cannibalized by increased software license, storage, and compute power costs in the data center. Further, strategic alternatives are arising, and we expect enterprises to become more comfortable pushing apps and data into the cloud in the long term, while containers and other technologies could marginalize Citrix's solutions. Citrix is taking steps to embrace the evolving IT environment with its Workspace Cloud product, but the solution is in its infancy. Ultimately, we think Citrix can continue to benefit from a modest growth environment in the VDI space in the near to intermediate term, but it must continue to develop its product suite to meet customer demands for mobility, security, and cost-efficiency.