Citrix Shares Plummet 46% on Bleak Forecast
Shares of Citrix Systems Inc., which adapts Microsoft Corp. software so it can run on a variety of computers connected to large corporate networks, plunged 46% on Monday after it said second-quarter profit would be about half of analysts’ forecasts.
Citrix shares fell $18.94 to close at $22.25 on Nasdaq, wiping out nearly $3.6 billion in market value. The shares fell 31% on Thursday and Friday, after the company’s chief financial officer skipped an investor conference and an analyst downgraded the shares.
The company, whose customers include Microsoft, IBM Corp. and Unisys Corp., makes software that allows desktop computers to run Microsoft Windows software, such as the Office suite, even if the machines were not designed to.
The earnings warning “tells you maybe [the company doesn’t] know the marketplace as well as they thought they did,” said Jim Grefenstette, senior portfolio manager at Federated Investors Inc., which has 700,000 shares of Citrix. “It’s absolutely a damage to management credibility.”
Citrix said its second-quarter earnings would fall to 9 to 11 cents a share before amortization related to acquisitions, down from 16 cents a year ago. Citrix was expected to earn 21 cents, the average estimate of analysts polled by First Call/Thomson Financial. Sales should rise to as much as $110 million from $94.4 million, Citrix said.
Even before the recent share drop began, analysts had cited worries about Citrix’s shrinking profit margins and the potential impact of a breakup of Microsoft Corp., which accounted for about 8% of Citrix’s sales of $403 million last year.
Citrix said Monday that it sees no change in its relationship with Microsoft, which owned about 2 million Citrix shares as of May, according to shareholder filings.
The company also produces software that allows non-Unix computers to run programs written for Sun Microsystems’ Solaris operating system.
Citrix’s program works by running the application on a central computer, or server, and sending an image of the program to the desktop computer.
Citrix stock skyrocketed last year from a low of around $19 to a high of $118 in March.
But starting in mid-1999, the company began shifting its focus from small and mid-size companies to large corporations, which could license thousands of copies of the Citrix software.
Citrix said it has taken longer to close these complex contracts, resulting in reduced sales. “It’s a bigger deal and it’s ultimately good for us, but it takes a long time to close the contracts,” spokesman Joe
Horine said.
The Fort Lauderdale, Fla.-based company said it’s looking more closely at its expenses and may move to cut costs this year.
Citrix Chief Executive Mark Templeton said on a conference call that the company still has too much packaged software in its inventory. “We expect these trends to continue through the second half of the year,” he said.
Gerard Klauer Mattison & Co. analyst Michael Cristinziano said there were signs of trouble starting with the last quarter. Cristinziano, who has a “buy” rating on Citrix, warned in March that Citrix’s sales wouldn’t beat first-quarter analyst estimates.
“With Citrix, we’re used to strong and upside quarters,” he said.
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Bloomberg News was used in compiling this report.
