Last year was a time of shaky transition for networking and virtualization stalwart Citrix Systems (NASDAQ:CTXS). Citrix is trying to adapt to the increasing use of mobile devices within the corporate world and to the rising popularity of cloud solutions. By the end of 2013, the effects of this new approach were mixed. In spite of management's stated optimism, Citrix faces challenges in 2014, including those from VMware (NYSE:VMW), Amazon, and Microsoft (NASDAQ:MSFT)

2013 wasn't all bad
There was some good news in 2013.

Citrix's networking and cloud division grew an impressive 27% year-on-year and now makes up 22% of the company's total revenue, up from 19% the year before. The major driver for this growth has been the NetScaler application delivery controller, or ADC.

The success of NetScaler has to do with two factors. First, it's often bundled with the company's other offerings such as its virtualization solutions. Second, Citrix has been cooperating with Cisco in selling NetScaler since Cisco stopped development of its own ADC. Both of these are likely to continue in the future -- good news for Citrix.

Also, there were some positive signs in Citrix's move toward mobile. At the end of 2012, Citrix bought a company called Zenprise and then rebranded Zenprise's mobile device and app management software as XenMobile. Following a new release (8.6) in October 2013, XenMobile licenses grew by 150% quarter-over-quarter.

Such a result partly validates Citrix's strategy and illustrates some of the growing pains seen during 2013. It might also mean that many customers are done evaluating the product from the sidelines and are now more ready to buy. This could drive further sales down the road.

3 things to worry about for 2014
And, now for the bad news.

First, in an attempt to consolidate its desktop virtualization offerings, Citrix alienated many customers by trying to kill off its long-running XenApp product, instead funneling customers to XenDesktop. This caused a backlash since XenDesktop 7 (and later, XenDesktop 7.5) lacked many of XenApp's features.

Eventually, in January 2014, Citrix was forced to bring back a version of XenApp, implemented with new technology, but still lacking some of the older features. Until newer versions of XenDesktop catch up with XenApp 6.5, customers will have an active disincentive to upgrade, as well as a reason to question their long-term relationship with Citrix.

A slowdown in a core business
Second, mobile and desktop license revenue was down 8% in the last quarter, in spite of the growth in the XenMobile business. Partly, this was expected -- at the start of 2013, Citrix claimed that its move to mobile might temporarily hurt its desktop business.

However, it might also be the beginning of a problematic trend for Citrix. During the Q4 conference call, one analyst commented, "And then on your desktop business, obviously like this quarter -- it seems like everyone kind of doesn't like you anymore." Acting CEO David Henshall didn't appear to address that directly, and instead talked about how the company is investing in research and development on the mobile front.

In any case, mobile and desktop is Citrix's largest division in terms of revenue, and new licenses are the engine for future revenue growth, so a dip like this is definitely a cause for concern.

Big name competition
Third, Citrix is seeing increased competition from some very big names. In October 2013, VMware bought Desktone, a desktop virtualization company, and quickly released it as part of its Horizon suite. In March 2014, it also launched its desktop-as-a-service, or DaaS, offering based on the Desktone technology. This puts VMware a step ahead of Citrix in the cloud desktop market since Citrix still does not offer DaaS directly, but only through partners.

Several weeks later, Amazon, one of the largest players in the cloud market, also came out with its own virtual desktop implementation that will compete for mindshare with Citrix's XenDesktop, and might be better suited to companies that want a cloud solution, rather than a privately hosted one.

Finally, Microsoft is believed to be working on a desktop-as-a-service product, titled Mohoro, that could be released around the middle of 2014. It isn't clear how this will influence Microsoft and Citrix's traditionally close working relationship.

Where next for Citrix?
Citrix is addressing its XenApp customer relation problems and will certainly be working on getting its desktop and mobile licenses back up, now that its mobile offerings are maturing. Also, increased competition in the desktop-as-a-service market is probably a sign of the size and value of that market. Nonetheless, Citrix has plenty of work on its hands this year, and it's worth keeping an eye on the company to see how it executes.

Srdjan Bejakovic has no position in any stocks mentioned. The Motley Fool recommends VMware. The Motley Fool owns shares of Microsoft and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.