Rumours heating up that Citrix may snap up XenSource

On the heels of Tuesday's successful VMware IPO, rumours are again circulating that Citrix and XenSource may be hatching an acquisition deal just as the server and desktop virtualization markets are red hot.

Investment banking firm Jefferies & Company issued a report Tuesday on Citrix entitled Citrix-Xen Makes Perfect Strategic Sense.

The company says Citrix's close relationship with Microsoft - the two have worked together for years on thin-cleint technology - is key in that Citrix could help Microsoft make up ground on VMware, whose successful IPO on Tuesday confirmed its leadership role in the emerging virtualization market.

Jefferies pegged $400 million as a projected price Citrix would pay for XenSource.

Neither XenSource or Citrix had any comment on the rumours.

Jefferies noted Microsoft's struggles to release software to competently compete with VMware's ESX platform.

The software Microsoft is struggling with - Windows Server Virtualization (WSV), an add-on for Windows Server 2008 - is slated to ship mid-2008 even though Jefferies incorrectly reported the dates.

The report says the relationship Citrix and Microsoft crafted in the 1990s around Citrix's MetaFrame thin-client technology provided Citrix an insiders view of Microsoft's roadmap and allowed Citrix to focus on building enhancements and improvement to the overall platform.

Jefferies said that scenario could play out again if Citrix acquired XenSource and provided Microsoft with technology it could use to battle VMware as WSV remains in development. Citrix could then focus its efforts around the desktop and management tools.

Observers say it is a logical strategy given the fact that Microsoft faces an uphill battle in proving it can deliver reliability in its Windows-based virtualization platform where system restarts of servers hosting multiple virtual machines can prove costly.

XenSource, which is carving out a niche with its open-source Xen hypervisor engine among Linux vendors, namely Red Hat and Novell, could fill the gap if WSV stumbles out of the gate next year.

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