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Citrix Joins the Virtual Mayhem

Citrix Systems (Nasdaq: CTXS  ) has been watching its livelihood go up in smoke lately, as its remote administration solutions have run into a spirited challenge from virtualization software. EMC (NYSE: EMC  ) spinoff VMware (NYSE: VMW  ) and software giant Microsoft (Nasdaq: MSFT  ) have made it easy to manage a once-sprawling data center on less hardware and with centralized administration platforms for scads of servers at a time.

Well, if you can't beat 'em, you better join 'em. Citrix just decided to buy privately held virtual server designer XenSource, to give the company a toehold in that new-wave management market. Xen is the virtual server of choice for Linux vendors like Red Hat (NYSE: RHT  ) and Novell (Nasdaq: NOVL  ) , so Citrix is basically buying into a product with a built-in ecosystem for support and promotion, as well as an active open-source developer community.

The challenge now will be to co-market Citrix MetaFrame and Xen successfully, or else come up with a reasonable plan to transition the existing customer base onto the new platform. I can see features from one product creeping into the other over time, until we're left with a fully integrated virtualization and management solution that takes the best from both worlds. That will take some time, though.

What's clear is that Xen represents a fresh start for Citrix, a way to hook into current trends and drive future growth. At $500 million, XenSource comes rather cheap, and Citrix has nearly a billion dollars of cash on hand to complete the deal. Given VMware's remarkable IPO and the general strength of this burgeoning sector, it could prove to be money very well spent.

Further Foolishness:

Microsoft is a Motley Fool Inside Value pick.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure always rides the bleeding edge of technology and style.

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