Nutanix hunts disgruntled VMware customers

The new Nutanix is virtually unrecognizable from the company that created the hyperconverged infrastructure (HCI) market in 2011. Nutanix has pivoted from selling rigid, preconfigured appliances to offering enterprise customers a flexible, software-defined platform for managing hybrid, multi-cloud environments. 

“As businesses have digitally transformed and IT operations have had to evolve to support the applications and workloads required for these transformations, Nutanix’s solution has also evolved. HCI today is not the HCI of yesterday,” says Matt Kimball, principal analyst at Moor Insights & Strategy. “Nutanix’s HCI solution enables the movement of apps and data from on-prem to multiple clouds – seamlessly, securely and easily.” 

IDC analyst Dave Pearson adds: “Their transition reflects what we’ve seen in the market in terms of hybrid cloud and hybrid multi-cloud adoption. Nutanix’s strategy of providing a consistent experience across datacenter/edge/cloud or dedicated/shared infrastructure is attractive to customers that have been affected by cloud cost surprises, regulatory compliance, security, privacy, or governance issues.” 

In addition to internal reinvention, Nutanix recently signed key partnerships with some unlikely on-and-off competitors: Dell, Cisco and HPE. The deals are aimed at enabling customers to gain the benefits of Nutanix’s cloud platform without having to swap out the underlying server hardware or change server vendors. 

And Nutanix is aggressively courting VMware customers who might be open to jumping ship in the wake of VMware’s purchase by Broadcom and some of the unpopular moves that have followed, such as potentially costly changes to licensing terms and disruptions to channel relationships. 

The road ahead for Nutanix holds both opportunities and some peril. The company is well positioned to drive additional revenue off the recent partnerships. It’s less clear that enterprise customers are really going to abandon VMware in significant numbers.

And despite creating a lot of buzz around HCI, Nutanix has never had a profitable year; and has only had one profitable quarter ever. It reported a loss of $207.2 million in fiscal 2023 and is on track to be in the red for fiscal 2024, which ends in July. Plus, with annual revenue at roughly $1.8 billion, Nutanix remains a relatively small player in a sea of behemoths, making it vulnerable to a takeover. Nutanix stock jumped almost 25% last December on takeover rumors, but to date no clear suitor has emerged. 

What does Nutanix offer today? 

Enterprises moving forward with digital transformation initiatives are looking to modernize their IT infrastructure to boost performance, increase agility and availability, improve ease of use and lower costs. For many enterprises, this means moving to software-defined infrastructure that has the flexibility to support bare-metal, virtualized, and container-based environments.

“Nutanix enables customers to modernize their data centers, unify all their clouds, and run any business critical and other application at any scale on software-defined infrastructure,” according to IDC. 

The company’s core HCI platform scores high marks in evaluations from Gartner and Forrester. 

Nutanix is a Visionary in Gartner’s Magic Quadrant for file and object storage. Gartner says: “Nutanix Files and Nutanix Objects are integrated with the Nutanix Cloud Platform to provide a unified storage offering. Nutanix’s Unified Storage platform appeals to customers looking for a single, multiprotocol platform that can be deployed either at the edge, in the data center or in the cloud.” 

Nutanix was identified as a leader in the 2023 Forrester Wave for HCI. “The Nutanix vision focuses on building a hybrid and multi-cloud platform for business applications, easing adoption of cloud-native architecture. Nutanix is a good fit for customers looking for a simple, scalable hyperconverged platform designed to enable cloud-native architecture in or out of the public cloud,” says Forrester. 

The report notes that Nutanix has built a full-stack offering that includes modern GPU support; Flow Virtual Networking for network function virtualization; and workflows for containers, including OpenShift integration, plus its own Nutanix Kubernetes Engine. 

The Nutanix Kubernetes Platform simplifies the management of container-based applications across hybrid clouds. And Nutanix is making it easier for customers to migrate off of VMware by supporting both its own AHV hypervisor as well as VMware’s ESXi hypervisor. 

Nutanix is also adding AI functionality to its portfolio. The company announced “GPT-in-a-Box,” an AI development environment that integrates with Nutanix Objects and Files, enabling developers to build GPT applications that leverage AI large language models (LLMs). 

The Nutanix Cloud Platform is a modular offering that includes Nutanix Cloud Infrastructure, Cloud Clusters, Cloud Manager, Unified Storage, and Database Services. Customers have a choice of hypervisor, a choice of hardware from a list of vendors that includes HPE, Lenovo, Dell, IBM, Cisco and Nutanix, plus a choice of public clouds (AWS and Azure.)

The Nutanix offerings seem to be resonating with customers. The latest market research from IDC shows that Nutanix was one of the only vendors that showed growth in HCI in 2023 – Nutanix was up 25.3%, while the overall market was down 2.9%. Nutanix also saw 28.6% revenue growth in Q1 2024, or roughly 7X the overall market growth, according to IDC’s Pearson. 

Deal or no deal: Dell, Cisco, HPE 

The recent flurry of parnerships reflects the changing dynamics of the market, and the trend among vendors to move beyond proprietary solutions and offer customers the opportunity to mix and match compute, storage and management. 

“I believe Nutanix is going to continue to kill it from a partner marketing perspective and start to penetrate larger enterprise opportunities through its Cisco and Dell partnerships,” says Kimball from Moor Insights & Strategy.

Pearson agrees. “These partnerships are definitely a net positive for Nutanix. Changing customers’ minds one at a time can yield dividends, but convincing a partner OEM to put resources behind your product is a multiplier.” 

• Dell: Nutanix and Dell, which have been battling against each other in the HCI market for years, surprised everyone when they signed a deal in May that would integrate the Nutanix HCI technology with Dell’s servers. The deal likely would not have been made had Broadcom not purchased VMware, which Dell once owned, but later spun off. In terms of market share, the Dell/VMware HCI offering called VxRail is No. 1 at around 40%, according to IDC. Meanwhile, Nutanix is running a distant second at around 25% market share. Uncertainty created by the Broadcom acquisition is driving customers to at least consider Nutanix as an alternative. “While Dell certainly enjoys a strong relationship with VMware, it seems to have recognized this market opportunity as well,” says Kimball. He adds, “I see this partnership as a big win for enterprise IT organizations that are on the hybrid multi-cloud journey. From a Nutanix perspective, this partnership should be seen as a huge win. Dell is number one in server and storage shipments into the enterprise. Being able to leverage everything that comes with Dell’s market presence should pay plenty of dividends for Nutanix.” 
• Cisco: In August, 2023, the companies agreed to create a new offering that integrates Cisco’s compute and networking infrastructure with the Nutanix Cloud Platform. The fully integrated and validated solution is being sold by Cisco’s global sales force. And Cisco recently announced it is discontinuing its own HyperFlex HCI platform altogether, telling customers that their migration path is Cisco UCS servers and the Nutanix Cloud Platform. 
• HPE: HPE and Nutanix became competitors in 2017, when HPE bought HCI vendor SimpliVity. But, as Kimball puts it, “After thrashing about for a few years, HPE returned to the table when it realized its customers were continuing to buy Nutanix HCI on HPE servers for the hybrid cloud. Today, we see the two companies collaborating in every aspect of go-to-market.” 

While these partnerships hold great potential, there’s another opportunity out there in the form of disgruntled VMware customers. 

The VMware migration: Fact or fiction? 

Despite warnings from Gartner analysts ahead of the Broadcom deal closing that enterprise customers should develop an exit plan, and predictions from Forrester analysts that 20% of VMware customers will flee in 2024, there not much evidence of a wholesale migration of customers from Broadcom to Nutanix – at least not yet. 

“It’s happening, for sure, but it’s not happening en masse or even at extremely high speed,” IDC’s Pearson says. “Lots of customers have long-term contracts with VMware that helps mitigate changes, and gives them time to explore alternatives, or hope for changes within the new Broadcom agreements before renewal. Still others have such deep hooks sunk into their portfolios by VMware that it’s extremely difficult to distance themselves without great effort and possibly expense, and strands a lot of internal skills they’ve spent time developing. Those customers may find it more palatable to accept higher pricing as the lesser of two evils. So yes, people are exploring alternatives, but it’s not a simple decision, and it will take some time for Nutanix to move the needle significantly.” 

Kimball adds: “I haven’t seen evidence of it yet – just a few select customers.” He points out that companies invested in VMware face a long, complex, expensive process should they decide to migrate. He adds that the real impact will be seen over time as VMware software licenses expire. 

That’s exactly what happened at the Mountain View Los Altos High School District in California, where director of IT services Bob Fishtrom switched from VMware to Nutanix when his software licenses were expiring, and the 30% price increase quoted by his VAR was “beyond prohibitive for a school district.” 

Seeking a cost-effective alternative, Fishtrom met with Nutanix, signed a contract on July 1, 2023, and was up and running in mid-July with a Nutanix HCI implementation that includes three physical servers running 24 virtual machines, plus a redundant set of three servers at a second site. The VMware license renewal, including a much-needed hardware upgrade, would have cost $750,000. He paid $533,000 to Nutanix for hardware, software licensing and training for his staff, for a savings of more than $200,000. 

“It’s been pretty awesome,” says Fishtrom. “Everything they promised us, they delivered on and then some. It’s been a really powerful and meaningful partnership.” At one point, a there was a hardware failure and the backup server kicked right in. “Nobody even felt a hiccup,” said Fishtrom, and a replacement part was delivered within 24 hours.

Fishtrom says end users are happy with the reliability and speed of the network. “It’s lightning fast. I don’t have to reboot all the time like I did with VMware.” He adds, “I’m the kind of person who really cares about how our network racks look. This is a really sexy looking stack, professional and clean.”

The district, which serves 4,400 students at the high school level across six campuses, plus more than 3,000 community members in an adult learning program, is also using Nutanix cloud backup and disaster recovery services. Fishtrom says the business continuity aspect of the Nutanix service is particularly important, since the district was once hit with a successful ransomware attack.

The road ahead 

When Nutanix announced earnings in May, the company said the number of sales opportunities in the pipeline grew more than 30% over the first three quarters of the fiscal year, and the total dollar value of those opportunities increased 50%. However, while the number of large deals currently under negotiation is increasing, so is the time it’s taking to finalize those deals. 

Jason Ader, an analyst at William Blair, wrote: “Full-year guidance assumes modest impact from the VMware displacement opportunity and developing OEM partnerships, both of which should have a more material impact in fiscal 2025,” which is when stock analysts are anticipating that Nutanix will begin showing sustained profits.

Even without an immediate impact from VMware defections, Nutanix did report solid revenue growth in its latest quarter, with a 17% increase in year-over-year revenue and a 24% increase in annual recurring revenue, as it climbs toward the $2B annual revenue mark. 

“The company is firing on all cylinders, beating earnings estimates and rapidly expanding its portfolio to match the continually shifting needs of enterprise IT,” says Steve McDowell, chief analyst at NAND Research. “No infrastructure management software company has as broad a portfolio, disciplined execution, and as devoted a customer base.”