Nutanix Uses Q2 Financial Call To Discuss Dell EMC Relationship, HPE's SimpliVity Buy, Future Direction

Nutanix is increasing its dependence on channel partners, and on vendor partners such as Dell EMC and Lenovo, as it continues to drive toward profitability in the hyper-converged infrastructure market.

Nutanix, which on Thursday reported its second fiscal quarter 2017 financial results, also said it continues to perform well against competitors such as Hewlett Packard Enterprise and its newly acquired SimpliVity business, but is seeing the current memory shortage impacting results for the next quarter.

Nutanix for its second fiscal quarter of 2017, which ended Jan. 31, reported revenue of $182.2 million. That was up about 77 percent over the $102.7 million the company reported for the second fiscal quarter of 2016, said Dheeraj Pandey, chairman and CEO of the San Jose, Calif.-based company.

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Pandey, speaking to financial analysts during Thursday's analyst conference call, said Nutanix signed 900 new customers during the quarter, compared with 700 new customers in the prior quarter, bringing the company's total customer count to over 5,300 companies.

The company's growth came in part because of its partnership with Dell EMC, which integrates Nutanix software on its PowerEdge servers, and because of a growing partnership with Lenovo, which integrates the software on its System x servers, Pandey said.

While there are those who doubted that Nutanix would continue to thrive once Dell finished its acquisition of EMC and gained VMware's hyper-converged infrastructure technology, that has not proven to be the case, he said.

Despite Dell EMC's move to improve front-end compensation for selling that company's VxRail offering, Dell EMC is also continuing to do well with Nutanix, Pandey said. "There's only our brand that works at scale," he said.

Howard Ting, Nutanix's chief marketing officer, said during the call that Nutanix continues to spend time with Dell EMC to show its sales reps the areas where the Nutanix offering works best.

Pandey said Nutanix has done much to train Dell EMC on the Nutanix portfolio because corporate executives will look at what is best for them and not what the corporate officers say

"This is going to come down to hustle on the street," he said.

Pandey also dismissed any concerns over HPE's acquisition of Nutanix archrival SimpliVity. "If SimpliVity were really bringing delight to its customers, [the sale to HPE] wouldn't have happened the way it did," he said.

When one analyst asked about Pure Storage's assertion during its fiscal 2017 financial report this week that the hyper-converged infrastructure business is still primarily focused on smaller customers, Pandey said that his company would not be approaching a billion-dollar run rate by only selling to remote and branch offices.

About 50 percent of the workloads running on Nutanix hyper-converged infrastructure appliances are tier-one enterprise workloads, while about 30 percent are virtual desktop infrastructure workloads, he said. Customers are running Microsoft, SAP and Oracle workloads on Nutanix, he said.

Most customers start with a single workload, and then dial up the number and types of workloads they run on Nutanix appliances, Pandey said. "These things happen as trust in the platform grows," he said.

Meanwhile, the ongoing DRAM and NAND memory shortage is taking its toll on Nutanix, said Duston Williams, the company's chief financial officer.

Product cost rose about 2 percent in the second fiscal quarter because of tight memory supplies, compared with the normal 1-percent-plus drops experienced in the past, Williams said.

Williams also said Nutanix expects DRAM prices to rise 30 percent to 40 percent in the third fiscal quarter of 2017, one of the factors that caused Nutanix to adjust the third quarter's guidance downward.

Pandey said that, with the cloud becoming an increasingly larger part of customers' infrastructure plans, Nutanix can be expected to bring to market new offerings that reflect customers' changing thoughts about how they purchase technology.

"We continue to grow our capability as a company that does not take sides in the Capex vs. Opex conversation," he said.

For the second fiscal quarter of 2017, Nutanix reported a GAAP loss of $93.2 million, or 66 cents per share, a significant increase over the company's loss of $33.2 million, or 28 cents per share, in the second quarter of 2016.

On a non-GAAP basis, Nutanix reported a loss of $39.9 million, or 28 cents per share, which was slightly more than the $30.9 million, or 26 cents per share, it reported last year.

Investors were not happy with the second-quarter results or the third-quarter guidance and drove share prices down nearly 14 percent in after-hours trading.