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Nutanix revenue still growing for now

In its early days, Nutanix’s biggest challenge was convincing people that hyper-converged appliances were a better fit for their organizations than traditional server/storage systems. Now that Nutanix has created a hyper-convergence market, its biggest challenge is fighting off larger vendors looking to take over.

Nutanix’s competition — which includes Dell EMC/VMware, Cisco, Hewlett Packard Enterprise (HPE) and, soon, NetApp — was a recurring theme on the hyper-converged vendor’s earnings call Thursday night. Nutanix revenue of $182 million in the quarter beat expectations, but executives admitted they could have done better and their forecast for this quarter proved disappointing.

The most interesting Nutanix competition comes from Dell EMC, which also owns VMware. Dell EMC still sells Nutanix software on Dell PowerEdge servers, but has its own VxRail hyper-converged array driven by VMware vSAN software. VMware and Nutanix partnered closely when Nutanix first launched, but now VMware competes directly in hyper-convergence and Nutanix has its own AHV hypervisor that competes with VMware.

“People have speculated about the demise of this relationship ever since the Dell-EMC merger was announced 18 months ago,” Nutanix CEO Dheeraj Pandey said on the earnings call. “And Dell has had EVO:RAIL and VxRail and vSAN Ready Nodes to sell for a long time now. They say they lead with VxRail- and VMware-only environments. So it’s our job then to convince the customer why Nutanix is a better fit to support their multihypervisor strategy. And with that there is only one product in town that works at scale.”

Nutanix revenue under fire from new competitors

HPE beefed up its hyper-converged technology with a $650 million acquisition of SimpliVity, which helped pioneer hyper-convergence with Nutanix. But Pandey dismissed SimpliVity as a serious competitor. He pointed out that Cisco was an early SimpliVity partner, but went to Springpath for the software for its HyperFlex hyper-converged product.

“If SimpliVity really were bringing that customer delight to its end users, it wouldn’t have ended up the way it did,” Pandey said. “There was a reason why Cisco passed on them, even though they were close partners. HPE picked up a relatively distressed asset, which will buy them nothing more than some short-lived press.

“But we’re absolutely not concerned about HPE or Cisco or NetApp in terms of competition,” he said. “They’re not software companies with experience in building full-stack operating systems that address compute and storage and networking and security and overall management.”

Pandey said Nutanix’s AHV hypervisor was included in 21% of the nodes it sold last quarter, compared to 17% the previous quarter. He said customers who license AHV usually keep VMware at the start, but a few have ditched VMware after getting comfortable with AHV.

Growing pains continue to dog sales

Pandey finds himself defending Nutanix against more than other hyper-converged vendors these days. During Pure Storage’s earnings call this week, the all-flash array executives described hyper-convergence as a fit only for branch offices and virtual desktops. Pandey disputed that, pointing to his forecast that Nutanix revenue will hit $1 billion next year.

“We cannot be selling remote office, branch office systems and making $1 billion in annualized run rate,” he said. “Definitely more than 50% of our workloads are with Tier 1 enterprise workloads. VDI [virtual desktop infrastructure] is about a little less than 30% for our workloads, and a lot of the Tier 1 workloads include Microsoft, SAP, Oracle.”

Still, Nutanix is experiencing growing pains in its sixth month as a public company. While Nutanix revenue of $182 million last quarter beat expectations and grew 78% year-over-year, guidance in the $180 million to $190 million for this quarter fell below expectations. Pandey said sales in North America fell short of Nutanix’s goal last quarter as well. And the company keeps suffering heavy losses — $93.2 million last quarter.

Nutanix’s stock price dropped from $31.12 at Thursday’s market close to $25.52 at today’s open after the earnings report.

Pandey attributed disappointing North American results to promotions of salespeople to management jobs, which he said will prove positive in the long run. He also pointed out Nutanix added 900 new customers in the quarter compared to 700 in the previous quarter, bringing its total to more than 5,300.

“Our win rates remain strong and consistent with prior quarters, and we are pleased with our ability to demonstrate the value of our full-stack operating system and competitive opportunities,” he said.


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