NTNX saga continues

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https://www.crn.com/nutanix-channel-chief-rodney-foreman-exi….

Rodney Foreman was Nutanix’s global channel chief. He left after 15 months following their chief revenue officer.

“Nutanix is going through a rough patch right now,” said one top executive from a solution provider who partners with Nutanix who did not want to be identified. “Our sales with them are solid, but they need something to rejuvenate trust in the marketplace. … With Rodney leaving, their strategy isn’t too clear right now for us. We’re hoping to learn more about their channel plans at [Nutanix .NEXT Conference] in a few weeks.”

This can be viewed two ways.

  1. Trying to get the right people in key positions.
    or
  2. Rats jumping a sinking ship.

IF i were still in the stock I would be looking for good numbers from Xi, and a recovery in sales from HCI. But, I’m not in the company anymore.

Good luck to those who are.

-e

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The HCI market is growing at a hyper growth pace and Nutanix is in a “rough patch”?

In hyper growth markets even incompetents can usually prosper much less the leading vendor.

On NPI we discussed the disconnect we ignored because Nutanix was “cheap” and the market simply misunderstood the business transition.

I know I stretched my rules in multiple categories as I looked back at my notes. I was really upset w myself (albeit I did have a 50% profit prior to the crash…ended up losing all the paper profits and took small capital loss).

But beyond that there was a clear disconnect and that was no matter how you calculated it Nutanix was growing slower than the market itself. This got covered up by Nutanix for a quarter finally becoming the market leader, but nevertheless it was so.

More so the issue w Dell came back to hurt them. Dell began aggressively pushing VMware and no longer pushing Nutanix. Long considered a risk, but most figured over blown. Well, like w Nvidia crypto currency, it was not overblown. Nutanix’s issues began as Dell became aggressive for VMware.

Lesson, don’t stretch your rules to make something fit that does not, be cautious of over reliance on factors outside the control and interests of the company, and don’t ignore disconnects between rhetoric and actual data (growing slower than the market).

Of further lesson is when a company refuses to disclose actual sales of material products. Here the Xi and other collateral products like Files. This has become a real yellow flag. Not dispositive but a flag nonetheless. I don’t ignore my mistakes. That is the only benefit of mistakes is to learn not to make them again.

Tinker

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More so the issue w Dell came back to hurt them. Dell began aggressively pushing VMware and no longer pushing Nutanix. Long considered a risk, but most figured over blown. Well, like w Nvidia crypto currency, it was not overblown. Nutanix’s issues began as Dell became aggressive for VMware.

I think this may be a big part of what we have seen happen with Nutanix. I’d actually welcome it from a long term perspective and here is why.

My assumption relies on the fact Nutanix provides a far better value than VMW/Dell. So first off, if that is not correct, the rest to follow fails. Nutanix is not a start up looking to break into the space. They’ve broken in. If Nutanix were just a burgeoning enterprise in the space, my view would be completely different. They are not.

We have seen it repeatedly in the companies we invest in - disrupting the incumbent. In this instance, the incumbent may have made moves to make it more difficult for Nutanix. Good for them. I’d do the same if I ran VMW. I understand the best product doesn’t always win and the market decides who to go with. However, I’m not sure that principle applies here. Nutanix has too much of the market currently and some optionality to boot. The valuation is low though rising recently. It is one which I will also continue to hold.

I reserve the right to change my mind at any moment, but those are my feelings now.

A.J.

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I also just saw that NTNX is looking for a Software Director for their Prism product.

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Rodney Foreman’s departure do not seem to be voluntary to me. He was brought in by Lou from Informatica and after Lou had to leave ( because Chris Kaddaras got the ownership of sales in NA and EU), Rodney’s departure makes a logical next step to replace the old sales leadership team with the new team. Nutanix is a market leader and they had a bad couple of quarters. But for me the long term story is intact. They have a better mousetrap than VMWare and in this HCI duopoly, Nutanix will prevail. The HP partnership will also provide now an extra tailwind. Dell pushing VXRail will backfire as it is expensive and does not fit many customer needs. I have seen customers commenting that this will be like Dell trying to fit a square peg in a round hole.

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I’m still holding. (Actually bought more at $36)

I completely understand that if you don’t trust that their CEO is honest or competent, you should immediately move on. With as bad as this last quarter has been, there is plenty of questions hinting at that conclusion.

As we talk about what makes our stocks worth so much, it is the growth/TAM/optionality. In the positive column, you have a software company guiding to more than double bookings in the next few years, in a $100B+ growing market, with additional new products growing rapidly.

There are huge red flags regarding poor short-term communication and an inexplicably bad recent quarter - yellow flags of getting rid of some people who seemed to be terrible at their jobs. I don’t consider this a Saul stock until they can prove that the ship is righted, but expect that if they do, it should be a double in short order.

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Here is the bad sign and I have seen it many times in markets that have “huge TAMS in hypergrowth” and that is when you have to continually spend more money to create even less growth.

Such stocks go up big, big, big, pie in the sky, and then eventually the market figures out they are buying their growth and not the market rushing to them for their solution per se.

This happens in markets that are just too competitive.

I think we hit this one on the bullseye, and that is that the change in Dell’s marketing behavior relative to Nutanix has materially harmed Nutanix’s business. Dell has been successful, in a short period of time, to move customers away from Nutanix to VMWare. Of course we don’t know that, but the tea leaves seem apparent. Dell’s attitude towards Nutanix changed from best of friends to bitter rivals about a year ago. There have been comments by people in the field with Dell directing VMWare be featured and hostility towards leading with a Nutanix product, and coincidentally with all this, in the midst of the market leading product in hyper growth…bash! Market leading products in hyper-growth don’t go “bash” so quickly while the market expands and stays in hyper-growth absent a real material issue.

It seems that Nutanix was far more dependent on Dell sales than was perceived.

Nutanix clearly does not have the marketing push to equal Dell. HP is second tier compared to Dell. But perhaps HP and Nutanix together can right the ship with their marketing muscle and best in breed product.

However, all this said, you can see just how competitive this market is. Thus, the continual need to spend money to bring in money with little in regard to eventual turning on money spigots in the works. It is a common pattern.

Again, I am still mad at myself for moving so dramatically from my rules. Nutanix is a company that has done great things against giants, a visionary founder CEO who is great at putting diamonds in everyone’s eyes who listen to him. However, they cannot escape how competitive their market is. For Nutanix to do great they have to remake this market in their image. Hey, they might succeed. However, there is no real world evidence to date of the market following suit at present. Thus it is visionary again. A rule, never invest in a vision without real world business facts to back it up. Too many other opportunities to invest in that have lower risk and equal reward (ie, category killers in hyper growth).

Tinker

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Nutanix is a dead issue for me, but I keep seeing people talk about Dell/VMware as the reason for Nutanix fall, and that just simply isn’t the case.

Nutanix mgmt grew their portfolio too quickly and/or didn’t grow their sales force in a proportional manner to sell this expanded portfolio. This caused Sales to take their eye off the ball and HCI sales/pipeline suffered…somewhat predictably. I uttered this very concern after attending their sales kickoff last August; the new products were cool and definitely in-line with market trends, but having been in the IT sales universe for a while, I know humans still sell these things and humans don’t always do well with rapid change and focus.

Here is what I wrote after their last ER:
Hindsight is always 20-20, but I should have done a better job pointing out that NTNX core business is infrastructure, and infrastructure is largely an afterthought to anyone outside of IT within the Enterprise. Developers don’t care, for example…they just want access to their workloads when and where they want. The workloads are more valuable, and thus garner the higher P/S ratios.

Another area I probably didn’t hit up enough was that Nutanix is competing, not just against other HCI vendors, but against standard storage vendor solutions and standard server/blade vendor solutions and against converged systems and against the public cloud.

But they were kicking butt, because they were laser-focused, and they simply expanded the portfolio too broadly too quickly. In most sales organizations, whether VARs or Vendors, you have specialist sales people for software vs hardware and further specialized within each.

Selling HCI was akin to selling a hardware appliance. That skillset is very different than selling Beam or Calm or Frame. Different audience too. When you sold Nutanix, you often had to go above the Storage Admin because they make a living being the resident “expert” on whatever standard incumbent storage platform existed (netapp, emc, 3par, hitachi, ibm, etc). So Nutanix HCI reps usually targeted the Dir of IT, or Mgr of IT, or lead Infrastructure contact, or VP of IT or CIO. Most IT reps don’t get a lot of at-bats, if any, with the CIO, in reality. So if you are trying to sell Beam (analyze your multi-cloud app spend) odds are the contacts you had for HCI aren’t the right fit. There is probably a Cloud team or it would be the CIO, or even the CFO if it is all about reducing cloud costs. If you sell Frame, you could be dealing with the legacy desktop/notebook leads and not your Dir of IT contact. Logistics and quality sales approaches really do matter. Yes, you need a good product in the first place. But the CEO admitted he “let chaos reign” which is all we really needed to hear I guess, to explain the lack of pipeline that led to a low forecast.

Amazon is really amazing, when you think this through. The ability to pivot in very different businesses is an art and a science and most companies can’t do it. Even TEAM, a highly celebrated company, capitulated to Slack when they couldn’t penetrate that market with their own project, then did a partnership where they agreed to shutter the competing division.

You can’t just say “we are going to be the O/S for the multi-cloud!” and hope your sales reps just figure out how to make that happen on the backs of an HCI hardware-ish appliance-ish sales motion dna.

I don’t care if I miss out on a 10-bagger in NTNX down the road, the less I learned is to stay away from hardware and/or infrastructure software that mimics the hardware sales cycle, like HCI does. Too many other/better stocks to invest in and focus on, imo.

Dreamer

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wow, so many negative takes here.