Citrix Buying Virtualization Vendor XenSource For $500 Million

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Citrix' buyout of XenSource, which had been rumored for several days, comes one day after XenSource competitor VMware went public on the New York Stock Exchange in one of the strongest technology company IPOs in years.

Citrix will pay a combination of cash and stock, including the assumption of some $107 million in unvested stock options, totaling some $500 million to acquire XenSource. Citrix, which markets application delivery infrastructure products, said adding XenSource software to its lineup moves it into server and desktop virtualization markets, which the vendor expects to grow to nearly $5 billion over the next four years.

The acquisition is also expected to enhance Citrix's relationship with Microsoft with which XenSource has close ties. Microsoft and XenSource inked an agreement in July 2006 to co-develop and deliver virtualization technology that improved the interoperability between Xen-enabled systems and the virtualization technology " known as Viridian " being built into the next generation of Microsoft Windows Server.

This week XenSource debuted a new release of its XenEnterprise that brings it closer to parity with VMware's functionality. XenEnterprise v4 offers the XenMotion feature for live migration of virtual servers without service interruption. The new release also includes a 64-bit hypervisor. All of that is expected to take XenSource deeper into the realm of data center-class computing.

While observers say Citrix's acquisition of XenSource makes sense for the vendor and Citrix resellers, there are questions about whether XenSource channel partners will benefit. "We selected XenSource because we were looking for faster and better technology," said Sergius Heifa, president of Teklan, a Toronto-based integration and security solution provider and XenSource partner. "We mix a lot of services with XenSource. Citrix is a commodity product. Its resellers beat each other up on price. If Citrix acquires XenSource, it would take an up-and-coming technology and make it just a part of its bag of technologies."

Citrix said that once the deal closes, XenSource and its products will become the core of a new virtualization and management division within Citrix led by XenSource CEO Peter Levine. He will report to Citrix president and CEO Mark Templeton. Citrix also said it remains committed to maintaining and growing its support for the Xen open source community that's led by XenSource co-founder Ian Pratt.