Thin Client

Citrix announced Wednesday, Aug. 15, it would buy XenSource, a Bellevue, Wash. provider of open source server and desktop virtualization software, for $500 million in cash and stock. That deal, scheduled to close in the fourth quarter this year, followed the public debut Aug. 14 for VMware Inc., the clear leader and a XenSource and Microsoft rival in the virtualization software sector. VMware roared out of the gate with a $1.1 billion initial public offering and was valued at $19 billion.

'It is quite likely that Microsoft may put in a competing bid on XenSource to the level of $1 billion,' said Trip Chowdhry, senior software analyst at Global Equities Research. 'And I would say if Microsoft puts in a bid, IBM won't stand still.'

Chowdhry said a Microsoft offer would make sense for several reasons. The Redmond, Wash.-based software giant has 'been a total failure when it comes to virtualization,' he said. Microsoft is in the process of building its own virtualization technology, called Viridian, which will be integrated with its Windows Server product slated to be released in the third quarter of 2008.

XenSource and Microsoft have partnered since last year, and XenSource is located close to Microsoft's headquarters. Additionally, Microsoft archrival Google Inc. in May snapped up GreenBorder Technologies Inc., a provider of browser virtualization security software.

Microsoft is known for being reactive when it comes to acquisitions. This attitude resulted in the $6 billion purchase of aQuantive Inc., a Seattle online advertising firm, after several of its competitors — including Google — had already snapped up larger online advertising rivals. Microsoft completed the aQuantive deal Aug. 14; the purchase price represented an 85% premium to aQuantive's closing price prior to the transaction announcement in May.

Analysts were far from unanimous regarding whether Microsoft will move on XenSource.

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