On heels of VMware, Citrix announces hiring slowdowns

Tech sector, generally bullish so far, gets increasingly cautious

Citrix Systems Inc. said on Wednesday that it is slowing its hiring pace in response to economic conditions. It is the second IT vendor this week to cut the tempo of hiring, following VMware Inc., which said it was taking a "pause" on gaining new employees.

Both firms, in separate calls with financial analysts, cited a growing sense of spending caution among IT customers. Indeed, when Mark Templeton, president and CEO of Citrix, was asked on a call Wednesday with financial analysts to provide an anecdote to illustrate the trend, he was able to describe a firsthand experience with the changing mood.

Templeton said he spent June in Europe on business. Over the course of just those four weeks, he said he saw increasing amounts of caution in response to news headlines and fuel price increases. "It was remarkably different when I left Europe than when I arrived," he said.

Citrix reported $392 million in revenue for the second quarter, which ended June 30, up 17% from the year ago quarter. David Henshall, Citrix CFO, called those good results for the firm.

But Citrix hired less than 100 employees in the last quarter, which is less than half of the employees hired in prior periods, said Henshall. "Looking forward, I expect a further decline in the hiring rate for the remainder of 2008 and into next year," he said.

Paul Maritz, the newly appointed president and CEO of VMware, said Tuesday that although the company had hired 2,000 people in the past year, it is now putting in place a "hiring pause," limiting new hires to the most strategic. VMware currently employs 6,000 people.

Maritz did not say that the hold on hiring was related to the economy. Instead, he said it was needed "to make sure we have properly digested our growth."

But Maritz's angle hiring was blunted by statements from VMware CFO Mark Peek, who during this week's earnings call said there had been a "clear change" in customer behavior last quarter in response to changing economic conditions.

The moves by these two firms add weight to a report released by Goldman Sachs & Co. last week that predicted a decline in IT jobs in 2009, based on a survey of CIOs. The investment banks sees IT managers shelving discretionary projects.

But the Goldman Sachs survey also indicated that virtualization and server consolidation would be the top two priorities of IT managers -- a move that should help both VMware and Citrix's developing XenServer virtualization effort. Its server was released this year.

Citrix, however, cut its revenue forecast on the virtualization products (both server and desktop) that came out of its XenSource acquisition, from $50 million to $25 million for this fiscal year. Templeton said that the company had many firms in the process of piloting its products.

Citrix is also planning a major upgrade of its XenServer in this quarter, including high-availability features to automatically replace machines if they start to fail.

Templeton also said the company will be adding "Web 2.0-like tagging" capabilities to its server products, "dramatically enhancing operational and configuration management."

Charles King, an analyst at Pund-IT, said in the case of Maritz, the fledgling CEO may feel that it's better to be cautious with an outlook and exceed it than to fall short of an optimistic prediction. But VMware is "quite cognizant" of the fact that the virtualization market is changing, especially with the release of Microsoft's Hyper-V Server, "and I don't know if anyone knows where it is going right now."

A typo in an earlier version of this article has been corrected; VMware in fact employs 6,000 people.

Copyright © 2008 IDG Communications, Inc.

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