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Nutanix CEO: Next, we’ll hyper-converged clouds

Nutanix, recently recognized by Gartner as the hyper-convergence leader in the data center, wants to hyper-converge clouds over the next few years.

Nutanix continued its strong growth with a 44% year-over-year revenue increase last quarter. The hyper-converged pioneer also Thursday said it acquired cloud management startup Minjar to help it bring its hyper-convergence success to the cloud.

During the vendor’s earnings conference call Thursday night, Nutanix CEO Dheeraj Pandey said the market has reached “the inflection point of the journey of hyper-convergence of different data center tiers on a common operation centers using a common software platform.

“In the next few years, we intend to make a similar case for hyper-converging disparate cloud data centers using a common software platform.”

Unlike the early days of hyper-convergence, Nutanix has plenty of competition in the cloud. Almost every vendor is talking about their multi-cloud capabilities, and how they are enhancing those.

In an interview with TechTarget after the earnings call, the Nutanix CEO laid out Nutanix’s strategy for applying the fundamentals of on-premises hyper-convergence to multi-cloud data management. It involves rebuilding the Nutanix Prism management stack, integrating technology from Minjar and the Calm cloud orchestration technology Nutanix bought in 2016.

“With Prism, we hid the hypervisor details,” Pandey said. “We could talk to the underlying VMware, Microsoft Hyper-V or [Nutanix] AHV hypervisor, and with that we were able to deliver software-defined infrastructures to application administrators who were not virtualization experts. The cloud is a similar state. If you stack them, they look like the next-generation of hypervisors. There’s a need for a new Prism-like layer.”

Pandey said Nutanix will bring features such as replication and high availability across clouds, just as it did across all x86 server platforms. “All the hypervisor features in the last 15 years will come together in multi-cloud,” he said.

But Pandey said this scenario is three to five years away from fruition. “It’s misleading to say this will happen in the next few months or so,” he said.

Nutanix reported revenue of $287 million, up from $199 million a year ago. The vendor forecasted revenue of $275 million to $280 million this quarter, which compares to $206 million a year ago.

Despite its revenue growth, Nutanix still lost $63 million last quarter. That’s down from $76 million in the same quarter last year. Pandey said he is unconcerned about the losses because Nutanix has positive free cash flow – which is cash flow from operations minus capital expenditures. Nuanix had $32 million in free cash flow last quarter compared to $7 million a year ago.

“We’re running the business on free cash flow, like Salesforce or Amazon,” he said. “At the end of the day, it’s about free cash flow and growth. You can use free cash flow to acquire more customers. Repeat business is promising. On average our customer spends 4.5 times as much money as the original deal over the next 18 months. These repeat business patterns mean we should get that first dollar from customers. So why optimize for GAAP profitability when we can live in the world of free cash flow?”

Nutanix reported sales through OEM partner Dell accounted for close to 10% of total bookings in the quarter, and included three deals of over $2.5 million. Lenovo OEM deals included four deals of more than $1 million, and Nutanix landed its first customers from its OEM deal with IBM last quarter.

Nutanix also reported million-dollar software-only deals with customers running its software on servers from Cisco and Hewlett-Packard Enterprise facilitated through channel partners. Pandey said he is hopeful that these deals could lead to formal partnerships with those server vendors.

“The grassroots is where the rebellion happens,” Pandey said on the call. “The grassroots is the customers, the partners, they’re the ones who’ve been basically saying, look, ‘I love Nutanix and I would like for you to really run it in your servers.’”

Pandey estimated that 35% of Nutanix customers use non-branded appliances, and he expects that to grow to roughly half over the next 18 months. But he said the branded NX appliances will remain a key focus point even as Nutanix expands its partnerships.

“I think many customers just want one-stop support for both hardware and software,” he said on the earnings call. “We don’t want to throw the baby out with the bathwater as we go through this transition.”

Pandey said 30% of HCI nodes sold on Nutanix branded appliances include the vendor’s AHV hypervisor along with or in place of VMware or Hyper-V hypervisors.

Pandey said he is not worried about what a possible Dell-VMware reverse merger might do to Nutanix’s complicated relationship with Dell. Dell is Nutanix’s oldest and largest OEM partner, but Dell-owned VMware competes with Nutanix as the leading software for running hyper-converged appliances.

“We have been fielding this question for the last 24 months,” he said. “It’s difficult to speculate but I respect Michael Dell as a leader. He has massive roots in the server business … and they would not want to lose that by not being close to us. There are only two operating systems that are really emerging in this market. One is VMware and one is Nutanix. They’ve gotten closer to VMware, they might become one company. But I think for them to get close to another operating system would be a smart strategy.”