Nutanix Pitches IPO on Success Luring Business From Big Rivals

  • Fast growing hyperconverged market blends storage, servers
  • Kellogg, Spirit Airlines pick Nutanix over EMC-VMware

When Hilton Sturisky joined Spirit Airlines as chief information officer two years ago, the discount air carrier was weeks away from running out of data storage space and costs were getting “out of control.”

So he opted to move to what are called hyperconverged systems that combine server, storage and virtualization software in a single machine. In a deal worth several million dollars, he chose equipment from Nutanix Inc. rather than those from a joint venture of VMware Inc. and its parent company EMC Corp. Now the airline is saving money, he said.

“We expect to halve our power consumption costs by early next year,” Sturisky said. The decision meant Spirit can move faster, has plenty of storage space and hasn’t needed to hire more information technology workers to manage the system, he said.

Nutanix is banking on its success outmaneuvering established players to propel an initial public offering that may get moving soon after months of delays. The company, which reported that revenue jumped 82 percent to $305.1 million for the nine months ended April 30, aims to start its IPO roadshow as soon as next month, people familiar with the matter said Monday.

More companies are moving databases and business applications to these hyperconverged products in an effort to save money by making systems easier and less electricity-hungry to run. As the market for these packaged systems grows -- it more than doubled to about $982 million this year and may reach at least $4.8 billion by 2019 -- Nutanix has led the industry based on sales, according to industry analyst IDC. Customers include Kellogg Co., Toyota Motors of North America, Nintendo Co. and Best Buy Co.

Revived Rivals

Nutanix first publicly filed its intention for an IPO in December, but has waited for improved market conditions. Just as it faces the challenge of persuading potential investors that growth will continue, the company also will see renewed competition from its largest rivals, EMC and VMware, which will soon be owned by Nutanix’s biggest partner, threatening its top spot in hyperconverged systems.

The San Jose, California-based company’s appeal comes from its software’s ability to store and analyze data on inexpensive, standard servers. Yet much of its business comes from its partnership with Dell Inc., which is acquiring EMC and EMC’s controlling stake in VMware. Nutanix declined to say how much of its revenue is tied to Dell, but listed the issue as a risk in its IPO filing.

VMware Chief Executive Officer Pat Gelsinger credited Nutanix for sparking the hyperconverged market, but said it’s time for his company to move in and take the lead.

“Nutanix and SimpliVity, they really created the category,” Gelsinger said. “That said, hey -- the big guys have now shown up. Now that the category is established, I expect the big guys to become the name of the game.”

The technology should be a slam dunk for VMware and EMC. Much of the work being moved to these machines already uses VMware’s flagship virtualization software, according to IDC. Dell, while renewing the agreement to sell its hardware with Nutanix’s software, will market VMware-EMC’s system. Hewlett Packard Enterprise Co. also makes competing equipment. Even so, the bigger companies so far haven’t been able to catch up with Nutanix’s initial innovation in the market.

Innovative Technology

Nutanix said its product can free information technology workers from having to manage different complex systems. “Taking work away from your people -- that’s pretty darn valuable,” said Eric Sheppard, an analyst at IDC.

Spirit is now putting its most critical system on Nutanix –-- the one that controls the planes.

The Federal Aviation Administration requires “if that goes down, we have to shut down our aircraft, and then the passengers have to get off the planes, their mobile phones come out and social media goes crazy,” said Sturisky, who is leaving the airline in October.

While Nutanix’s software helps alleviate some of the biggest concerns for staff running corporate computer networks in-house, many companies will need the public cloud to run massive systems that can grow, said Anand Srinivasan, an analyst at Bloomberg Intelligence.

“Stuff like Nutanix, these are all nice Band-Aids that gives you the sense of flexibility and control and the No. 1 thing they are going after is ease of use,” he said. “But it’s not scalable and it’s terribly short-sighted.”

VMware disputes the notion that Nutanix is the market leader, claiming an edge in number of customers and units shipped. VCE, the VMware and EMC joint venture, introduced a new appliance this year called VxRail and counts customers like Fujifilm Medical Systems and Convergys Corp. Customers like Regional Health in South Dakota have chosen VMware’s virtual storage software over Nutanix, VMware said.

Still, Dell will continue to sell Nutanix, because, Gelsinger said, “they have a lot of customers.”

Speed and Flexibility

One such Nutanix customer is Salvador Millan, vice president of global information technology infrastructure at Kellogg, who wanted to find ways to help the largest cereal maker move faster and save money. In 2014, he started to examine Nutanix’s products. By the following year, he decided to adopt them and has put the company’s databases, document management and monitoring systems on Nutanix equipment.

“We can really set it up to support a variety of workloads,” he said. He also evaluated the product from VMware and EMC’s VCE joint venture -- but found Nutanix to be cheaper, he said.

Bay Area Rapid Transit has been using Nutanix for two years -- ever since CIO Ravi Misra saw the company’s booth at a conference. At the time, the public transit system for the San Francisco area was using EMC’s storage and experiencing outages. Misra didn’t think the VCE products were integrated enough.

The agency tried some of Nutanix’s equipment and was surprised at how quickly his team could set it up, Misra said. So far he’s saved at least $300,000 in capital costs and about $100,000 in operating costs.

“Other solutions would have been more licenses, more hardware,” Misra said. “Reliability has gone up and we don’t have the outages we used to have. Consistency and speed is pretty good. And there’s one neck to choke if we have issues.”