Citrix Systems is to acquire XenSource in a deal that will reshape the fast-changing virtualisation sector.

VMware garnered most headlines yesterday when its share price almost doubled on its first day of public trading but the company is likely to get serious competition after Citrix paid $500m to enter the field.

XenSource, a company that sprang out of Cambridge University, has strong relationships with Red Hat, Novell and Sun and has worked closely with Microsoft, but has lacked the recognition of VMware, which accounts for more than half of x86 virtualisation market share.

Citrix plans to combine XenEnterprise with its own Desktop Server and add monitoring, secure access and optimisation tools to improve management, widely seen as a weakness in virtualisation.

However, the acquisition could also change the delicate balance over who will want to cooperate with whom.

Serguei Beloussov, chief executive of virtualisation firm SWsoft, said, “Citrix is becoming a platform and getting into competition with Microsoft. This is more of an incentive for Microsoft to work with us.”

The XenSource sale will turn attention to other virtualisation firms such as SWsoft, Virtual Iron and KVM but Beloussov insists his firm is not seeking to be acquired.

“We’re not for sale because we’re making money and I’m starting to realise there’s no rush [to float],” he said. “We’ll enjoy what we’re doing and wait.”

The Citrix purchase comes as XenSource is beginning to realise not only direct enterprise deals but also wins from being embedded in Linux distributions.

While mostly used to virtualise Linux instances, Casio Computer has a nnounced it is using Xen in Suse Linux Enterprise Server to virtualise Windows servers. Red Hat has also revealed that telco subsidiary Swisscom IT Services is using Xen under Red Hat Enterprise Linux (RHEL) 5 to improve hardware utilisation.

Red Hat European vice-president Werner Knoblich said many customers are virtualising Windows using Xen.

“At the beginning we thought that customers would not mix and match OSes and we got proved wrong," he said.