SAN FRANCISCO (AP) — Citrix Systems Inc.'s stock sank more than 5 percent on fears that the business software maker's revenue growth will slow next year as companies buy fewer personal computers and pay for fewer upgrades to the operating systems on the machines that they already own.
THE SPARK: Morgan Stanley analyst Adam Holt cast a spotlight on the challenges facing Citrix in a Monday research report that concluded the company's pipeline of deals will begin to dry up next year, making it tougher to generate the revenue to propel the stock price higher. He downgraded his rating on the shares to "Equal-weight," from "Overweight."
Citrix, which is based in Fort Lauderdale, Fla., didn't immediately respond to requests for comment Monday.
THE BIG PICTURE: Citrix specializes in "virtualization" software, one of the hottest trends in computing during the past two years. The term refers to coding that lowers the costs of running data centers by enabling a single computer to function like multiple machines. The rising demand for virtualization software had lifted Citrix's stock price 34 percent this year before Monday's sell-off.
Through the first half of this year, the company's revenue rose 18 percent to $1.2 billion. The company earned $160 million during the first half of the year, up 3 percent from the same time last year.
THE ANALYSIS: Holt expects Citrix to deliver solid numbers through the rest of this year before running into difficulty next year. Corporate demand for personal computers appears to be waning amid uncertainty about the economy and the increasing popularity of less expensive tablet computers. Fewer new PCs in offices and data centers usually mean fewer sales for software makers such as Citrix that cater to the corporate market.
Citrix also could be hurt as the boon it's gotten from companies and government agencies upgrading their PCs to Microsoft Corp.'s Windows 7 from Windows XP winds down. As one of Microsoft's partners, Citrix has been seizing on the Windows 7 upgrades to sell its virtualization products. Holt estimates about 90 percent of the PCs virtualized by Citrix run on Windows 7. But by the end of this year, Holt believes 70 percent of corporate PCs will have completed the move to Windows 7, up from about 30 percent at the beginning of the year.
Holt trimmed his projections for Citrix's 2013 sales of software licenses and lowered his price target for the company's stock to $85 from $90.
SHARE ACTION: Citrix's stock fell $4.19, or 5.2 percent, to close at $77 Monday.