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VMware and Citrix Shine

May 20, 2008

By Jim Woods and Paul Carton

As the old axiom goes, "When the going gets tough, the tough get going." However, that doesn't appear to be the case when it comes to U.S. corporate software spending, which continues to trend downward.

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An April ChangeWave corporate spending trends survey shows deterioration in second-quarter software purchases with little relief in sight. However, there's good news on the virtualization front. We uncovered strikingly upbeat findings for VMware (VMW) and good indications of momentum for Citrix Systems (CTXS).

A total of 1,956 respondents involved with their company's software spending participated in the survey.

How Tough is Tough?

First, the bad news: Twenty-five percent of respondents said their company will spend less for software during the next 90 days, which is a three-point decline from our previous survey in January.

 

A miniscule 12% said their company will spend more -- a four-point decline from previously.

What's behind the continued pullback? Thirteen percent cited "a general slowdown in business conditions and capital budgets," which is a four-point increase from our January survey and double the percentage of six months ago.

In a further sign that the downturn is continuing, we asked respondents if there were any recent changes to their Q2 capital spending budgets, and 26% said they had been lowered during the past 90 days.
That's four points worse than just three months ago and more than triple the percentage of respondents who reported that their quarterly capital budgets have increased (8%).

Enterprise resource planning, document and enterprise content management, and customer relationship management software are the business software categories bearing the brunt of this pullback.

 

On the bright side, the survey does show increased corporate spending for virtualization software, with VMware strengthening its domination of this market. So far this year, VMware's market share has risen 12 points in our ChangeWave surveys (from 58% in January to its current 70%). And the stock is rising, too. After a precipitous fall in Q1, VMware's stock price has rebounded as much as 66% in the past few weeks.

 

None of the other major competitors have exhibited anything like this explosive growth, although Citrix (up five points to 26%) has also seen a jump in current market share.

Looking at planned corporate software purchases during the next six months, VMware (down three points to 73%) towers above the rest of the market, with better than a four-fold lead ahead of its closest competitors. But once again, Citrix (up eight points to 15%) is showing momentum going forward.

Thus, in a depressed corporate spending environment, virtualization is one of the only software spaces showing an increase in purchasing going forward. We will be keeping an eye on VMware, Citrix and the overall virtualization software market in the weeks ahead, as should you.

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Paul Carton is the Research Director of the ChangeWave Alliance. Jim Woods is ChangeWave's Senior Editor. The Alliance is a network of 15,000 highly qualified business, technology and medical professionals in leading companies of select industries. The Alliance is surveyed weekly on a wide range of business and investment research and intelligence topics.