Saul - NTNX - what changed?

Investment Analysis Clubs Saul’s Investing Discussions
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I would change the question to: Do they solve a business problem (VDI, computing at the remote sites/plants/mills or smaller datacenters or simply as a gateway to the public cloud) and/or save costs (in gear, software, and in facilities footprint and electricity/cooling), improve performance, and free up your expensive human workers to spend time being more innovative rather than reactive and spending their time just managing larger amounts of gear that tends to break down regularly?

I think finding the right questions is key, but I don’t think that’s it. What I want to know is, Is Nutanix more like Talend or Twilio? Both solved business problems, saved costs, etc, but Talend depended on a technology (Hadoop), and when it went out of favor, Talend’s offerings did too. Twilio isn’t dependent on any technology that I know of. They have created a network…an infrastructure…that solves the business problem. They’re not choosing a horse to bet on.

It seems to me, though I’m no techie, that NTNX has picked HCI to bet on, and built its core business around that. It has other innovative irons in the fire as you’ve pointed out, but I don’t know how big they are at present, or how much they depend on the HCI core offering.

I’m concerned there might be many other ways to solve the same problem other than HCI, and that it might fall out of favor like Hadoop, and that’s why I’m just not interested.

Bear

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It seems to me, though I’m no techie, that NTNX has picked HCI to bet on, and built its core business around that. It has other innovative irons in the fire as you’ve pointed out, but I don’t know how big they are at present, or how much they depend on the HCI core offering.

I’m concerned there might be many other ways to solve the same problem other than HCI, and that it might fall out of favor like Hadoop, and that’s why I’m just not interested.

Bear

I have heard no rumors of an HCI-killer in the wings.
Typically when a new technology gets hot, it starts in the fringes due to being considered “1.0” and many clients, especially larger enterprises, won’t jump in heavy into 1.0 releases of anything.

So even if a new disruptive technology comes out, it will likely be a couple years before it starts being meaningful/realistic as a replacement on-site. Amazon is working on “Outposts” which is new and not yet released, but I am less concerned about AWS as the trend in the larger Enterprises seems to be towards Azure due to tendency for Amazon to compete against everyone, and Microsoft already has a relationship with all the Enterprises and bundles Azure into the mix to get clients to adopt and use.

So could Azure/Microsoft create a competitive product to HCI? Maybe, but they have had Hyper-V competitor to VMware’s hypervisor for a decade or so and haven’t dented VMWare’s marketshare…I just don’t think getting into on-prem HCI-like hardware is of interest to Microsoft.

I mentioned elsewhere that had a sharp NetApp technical leader state to me a few weeks ago that he saw the future of storage as:
HCI predominantly for all storage needs, at edge and in DC.
Remaining storage footprint would be more the traditional SAN (NetApp, Pure, EMC) loaded up with GPUs and primarily used for data analytics.

NetApp now has an HCI solution too, so that doesn’t go against NetApp’s future, but it does inadvertently create a plug for NTNX, NVDA, and even AYX if you think it through.

I have heard similar thoughts/feelings in from multiple vendors/articles over the past year, it seems.

The strength of a platform, like HCI, can also be gauged by the “me too” type of imitation you see with multiple vendors all touting that they also have an HCI solution, such as:
HPE - organically, and via acquisition of SimpliVity
Cisco - Hyperflex
NetApp - newer entry
Dell/EMC/VMware - vxrail, vsan
Lenovo - reselling Nutanix
Dell - reselling Nutanix

Then, when they can’t win any longer, usually two things happen:

  1. the vendor not succeeding in that space will tout a competing product and bash the leaders
  2. the vendor not succeeding in that space will capitulate and form a partnership (an example here could be HPE eventually deciding to “bless” and tout the use of Nutanix on their servers, which they do not do today.

There are no guarantees in investments, so I can only state that I see no catalysts approaching that will definitely disrupt the HCI growth in IT over the next couple years, which the folks at IDC/Gartner seem to agree with.

Dreamer

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23

Paul,

Is Nutanix more like Twilio or Talend? Maybe you should ask if Twilio or Talend more like Nutanix?

Nutanix is the company with more than $1 billion in sales, #1 in its market despite the fact that its greatest competitor is VMWare, which is owned by DELL, and yet Nutanix servers are the #1 server sold by Dell despite their clear incentive, if they could, to sell everything with VMWare on it.

No, Nutanix is not a Talend. Talend is slow growth, and Talend seems to have mislead investors as to the grandeur of its cloud opportunity.

Nutanix is not going to fall off a cliff or prove in Rule Breaker parlance that the market it is in is not worth being in (from an investor perspective). Nutanix is in one of the largest and fastest growing markets in the world. A market that Nutanix, like Twilio afterwards, created itself and that it continues to lead.

Twilio has less direct competition. Talend is in a market that they did not create, and that has been mostly stale for a decade. What Talend did was create an open source solution, and then promote themselves as the #1 cloud purveyor in the market. This may be true, but left unsaid is just how small that market niche really is.

Tinker

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I believe IDC has named Dell as the leader in HCI currently – makes me worry for a stock like NTNX.

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VMWare (owned by Dell) is number 2.
NTNX is #1.

It is currently a duopoly.

AJ

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I believe IDC has named Dell as the leader in HCI currently – makes me worry for a stock like NTNX.

AWS / Azure
Coke / Pepsi
HPE / Dell
NetApp / EMC

There are probably thousands of examples of the ability to be a winner without being the leader.

Amazon, Cisco…those are the exceptions.
NVDA is far and away the GPU leader, yet AMD was one of best-performing stocks in 2018, while NVDA was one of worst.
TTD can’t hold a candle to revenues of FB, GOOGL, or AMZN on ad spend, yet only MDB and TWLO outperformed it in 2018 of the stocks on my watchlist.

Plus, part of Dell’s share may include the 20% of Nutanix sales that are resold via Dell, ironically. Even if it is not included, you then have to parse thru whether we are talking about vSAN or VxRail or both combined, which is also a bit misleading.

But, again, even if Dell is HCI leader, all that really does is help validate the relevancy of HCI in the marketplace and that just makes it that much easier for Nutanix sales reps to sell their solution when Dell, Cisco, HPE, and even now NetApp are all pushing “HCI” solutions, and they are basically the company that created the industry.

Most IT clients don’t like vendor lock-in, may not be fans of Dell, or EMC’s aggressiveness and high maintenance fees, of the ever-increasing licensing costs they have been paying to VMware for VSphere (hypervisor) over the years, and may prefer to utilize HCI from another vendor.

I know more expect 1 vendor to have 70-80% or more of the HCI market than I expect that a vendor will emerge with a similar share in the server or storage markets.

Cisco has accomplished close to this monopoly in switching space for a long long time, but they seem to be the exception to the rule in IT.

Dreamer

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27

I believe IDC has named Dell as the leader in HCI currently – makes me worry for a stock like NTNX.

Looks like it depends on whether you are looking at hardware or software.

https://searchstorage.techtarget.com/blog/Storage-Soup/Dell-…

Dell EMC extended its lead over Nutanix in hyper-converged systems sales in the second quarter, although Nutanix crept ahead of Dell-owned VMware into first when the market is measured by HCI software.…

On the software side, Nutanix revenue grew 88.9% year-over-year to $498 million and 34.2% of the HCI market. It slipped past VMware, which grew 97% year-over-year to $496 million and 34.1% share. IDC considers Nutanix and VMware in a statistical tie because they are within one percent in share. VMware’s share jumped from 30.9% in the second quarter of 2017 to 34.1% a year later. But it dropped from 37.2% share in the first quarter while Nutanix increased from 35.2% to 34.2% quarter-over-quarter to catch VMware. However, Dell did receive part of Nutanix’s revenue gains because the Dell EMC XC platform uses Nutanix software through an OEM deal.

Dell had $79 million in HCI software, putting it in a statistical tie Cisco ($77 million) and Hewlett-Packard Enterprise ($72 million). Dell had 5.4% share, Cisco 5.3% and HPE 4.9% — all within one percent.

B

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Nutanix is the leading vendor (and this does not even count all sources because Cisco and HP buyers also put Nutanix on their servers - although unauthorized by Cisco or HP, and HP actually did a marketing campaign in 2017 stating that Nutanix was not authorized to run on our servers - and yet still customers put Nutanix on their servers and go to Nutanix for service instead) despite VMWare and Dell and Cisco and HP having 6 figures in the number of enterprise customer accounts vs. now, more than 11,000 for Nutanix.

Despite this huge, and this is a HUUUGEEE disparity between Nutanix and all the rest, VMWare (along with its parent Dell) can only keep within a statistical tie of Nutanix. This means, since Nutanix has many marquee customers, and its deal size is materially growing as HCI approaches and may cross the “chasm” this year, that Nutanix is taking customers from VMWare and from Cisco and HP. Cisco + HP = ~10% total marketshare. VMWARE + Nutanix = ~70%+ of marketshare. Everyone else, including NTAP, EMC, and the new up and coming software companies fight over the remaining 20% or less of the market and are showing no signs of gaining any share from the top 2.

VMWare offers great product. Nutanix offers great product. The rest are also rans. Consider how good Nutanix product must be to be doing what it is doing in this market and it is getting stronger, not weaker. Now the market is moving to the hybrid integration market. Nutanix is the innovator, VMWare the close follower, and the rest…NTAP cannot even be said to be selling HCI, but rather CI (which has peaked and HCI has finally caught and is leaving in the dust. CI is converged infrastructure that was better suited to incumbents with hardware. HCI makes the hardware a commodity with software defined networking defining things).

If one is still worried about Dell, after all this time, so be it. Dell server sales would materially suffer if they forced their customers to buy VMWare instead of Nutanix. And doing this would not even guarantee more VMWare sales as customers (like they do with Cisco and HP) would most likely just continue to buy Nutanix and put it on whatever commodity server they can find. But hey, maybe the Dell MBA’s see the possibilities otherwise. Doubt it very much, but how knows.

Tinker

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The Q3 IDC report on converged systems show continued hyper growth for hyperconverged.

https://www.theregister.co.uk/2018/12/20/converged_infrastru…

The Hyperconverged Infrastructure (HCI) part rocketed up 67 per cent y-o-y – from $1bn to $1.68bn, having grown 63 per cent from the year before.

Big-ticket CI boxes are being overtaken by low-and mid-ticket HCI systems.

Total Nutanix sales grew 65.5 per cent to $594.7m in the quarter. Total Dell EMC HCI sales grew 67.0 per cent to $496.8m. VMware’s software-only HCI sales were $89.3m, up 57.2 per cent.

Total VMware VSAN + Ready Nodes (all vendors combined) had revenues of $590.6m, up 87.4 per cent.

Total Nutanix - $594.7M
Total VMWare - $590.6M

Increase from second quarter IDC report.

Nutanix - $96.7M (594.7-498)
VMWare - $94.6M (590.6 - 496)

NetApp came in with $21M in HCI.

Nutanix is coming off a bigger base than the others which is why their slightly slower growth still yields picking up market share. Nutanix started HCI but VMWare got in before market was too big. As for everybody else ask Google Cloud Platform how easy it is to gain market share when you’re late to the game and only at 8% in a sky rocketing industry with a dominate player or two sucking up all the action.

VMWare is a stagnant virtualization software company with an HCI offering. Nutanix is an HCI (the hot market)company that is bringing complementary SaaS offering to their Enterprise Cloud Platform.

Converged Infrastructure was the old hotness. That rule enterprise infrastructure for quite awhile. In the IDC report CI declined 2.5% to $1.94B while HCI increased 67% to $1.68B

Right about now HCI should cross over to be the bigger piece as HCI continues to climb like a rocket and CI continues to decline.

HCI will not answer every IT use case. But it is evolving into the Private/Public/Multi Cloud Infrastructure Management Platform. It is a hyper growth segment of the economy. There really is only one best horse company to invest in to participate and that is Nutanix.

Darth

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I’m new on this board, so I may have missed some earlier discussions.

Here’s what I think is a good link on HCI https://www.zdnet.com/article/what-hyperconvergence-is-how-i…

The end goal of HCI is the SDDC, which consists of three legs: virtual compute, virtual storage and virtual networking. Virtual compute is established technology. So is virtual storage, although a little less so. There’s a lot of competition in both as it is being commodotized. As far as I know, only VMware has virtual networking pat down with NSX and the likes of Cisco, Microsoft and a few smaller companies playing catch-up.

With the one important leg missing, how is Nutanix going to stay competitive long term? Especially when competing in the hybrid-cloud and cross-cloud space.

Mark

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https://www.google.com/amp/s/www.nextplatform.com/2018/05/09…

Nutanix bought netsil and now call these microsegmentation networking services “Flow”.

Lot of info at link.

Dreamer

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