Citrix Systems (Nasdaq: CTXS) just reported second-quarter results, and the numbers were good enough to send the stock to the moon. But you know what? I think Citrix could do even better with a couple of changes to the business model.

Sales in the second quarter rolled up to $458 million, 16.5% improvement over the year-ago period. Product licenses grew by 15% while the smaller technical services segment raced to a 35% gain. Put it all together and you get non-GAAP earnings of $0.41 per share, up from $0.39 per share last year. The actual results were somewhat of a mixed bag, but optimistic comments from Citrix management propelled the stock forward.

Citrix is holding its own in key markets like desktop virtualization and cloud computing. That includes the company's Xen software being the platform upon which cloud computing market leader (Nasdaq: AMZN) and cheeky upstart Rackspace Hosting (NYSE: RAX) construct their cloud servers.

Speaking from personal experience in the data center trenches, VMware (NYSE: VMW) is great for managing corporate data centers thanks to bucketloads of advanced features and easy-as-pie management tools, but Xen can be a cost-effective solution for more static environments like cloud server farms or hobbyist projects. The more diverse your hardware and user-facing software is, the better you'll feel with VMware. Homogenize all of that, and you'll reach nirvana with Xen eventually. There's definitely a market for Xen in virtual computing, alongside its long-standing bread-and-butter remote application products.

So if everything is so great for Citrix, what would I change if I had the power? Two things:

  • You see the trend toward more support services and less license growth? Put the pedal to the metal on that -- lower license fees, invest in providing top-notch support services, and let it all happen. Sales will suffer at first but profits never will. International Business Machines (NYSE: IBM) is one example of this virtuous cycle at work; another is Linux veteran Red Hat (NYSE: RHT). Citrix would do very well on this track.
  • Speaking of Linux, you may have noticed that SUSE Linux vendor Novell (Nasdaq: NOVL) put itself on the sales block. Citrix isn't rich enough to buy the whole thing, nor would it want to; but with more than $800 million of debt-free cash on hand, Citrix might be able to pick up the SUSE segment alone. Let Big Blue or some other giant with the resources to support legacy applications take Novell's aging Netware assets and so on, then run the other way with the much fresher Linux products.

With SUSE Linux and Xen virtual machines, Citrix would own an end-to-end solution, standing ready to profit from synergies and integration. Marry this to the service focus mentioned above, and Citrix could become a force to be reckoned with.

It would take some guts to change Citrix as we know it, but the end result would be so worth the trouble.

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