Citigroup software analyst Walter Pritchard this morning went in different directions with his ratings on Citrix Systems (CTXS) and VMWare (VMW), dropping VMWare to Sell from Neutral while raising Citrix to a Buy from Neutral.
Pritchard, which cut his price target on VMWare from $87 to $80, writes that he expects the company to forecast this year’s revenue below consensus when the company next reports, on January 23rd.
With more than half of servers deployed already running the company’s virtualization software, there’s a danger that VMWare is heading for a slowdown in its business, thinks Pritchard: “Server refresh activity has been strong for two years and is showing signs of slowing.”
Another factor is the slowing of “ELA” renewals, which he thinks peaked in the September quarter, and also a “lack of new product drivers,” he writes.
Pritchard is modeling $1.042 billion in revenue for last quarter’s sales, below the consensus $1.048 billion. For 2012, he’s modeling $4.42 billion in revenue, below the $4.5 billion average estimate.
As regards Citrix, “Success has not been without its fits and starts in 2010 and 2011,” observes Pritchard.
“However, our inputs suggest that much hard work on jump-starting new demand, prodding the installed base, reinvigorating legacy XenApp and building out the technology stack is resulting in more consistent, albeit modest desktop growth for Citrix in 2012.”
Citrix may see a few percentage points of revenue “uplift” this year by having moved to a direct sales model for about 1,100 accounts in the U.S., eliminating channel margin, he observes. And the Street, in focusing on the company’s desktop emulation business, is probably paying too little attention to the virtualization business that Citrix may get from “cloud” computing infrastructure.
Pritchard sees $617.6 million in revenue last quarter, up from a prior estimate of $614 million. For all of this year, he models $2.505 billion, up from a prior $2.47 billion, and ahead of the average $2.49 billion Street estimate.
Shares of Citrix are down 59 cents, almost 1%, at $64.85 today, while
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