Nutanix growth is being helped by Broadcom, says CEO

Mark Chillingworth Profile picture for user Mark Chillingworth March 18, 2024
Summary:
The acquisition of VMware by Broadcom is an opportunity for Nutanix, according to CEO Rajiv Ramaswami

An image of Nutanix CEO Rajiv Ramaswami
(Image sourced via Nutanix website)

Rajiv Ramaswami, President and CEO of Nutanix claims the multi-cloud computing provider is benefiting from the acquisition of its staunch rival VMware by Broadcom. Announcing its quarter two results, Nutanix reported a 16% increase in revenue year-on-year for the quarter. 

For the quarter ended 31 January, 2024, Ramaswami said: 

This is the seventh consecutive quarter that we have beat our expectations. All of this is a continuation of the business model transformation that we have been at for the last few years.

Key figures for the quarter are: 

  • 23% increase in Annual Contract Value, $329.5 million, up from $267.6 million

  • 36% increase in Annual Recurring Revenue (ARR), $1.74 billion, up from $1.38 billion

  • 16% increase in revenue, $565.2 million, up from $486.5 million

Speaking to the international press about these results, Ramaswami said: 

When you look at the components of this, we have a very strong base of renewals.

Rukmini Sivaraman, CFO of Nutanix added:

Our second quarter results demonstrated a good balance of top and bottom line performance with 26% year-over-year ARR growth and strong free cash flow generation.

The acquisition of Ramaswami's former employer, VMware by chips firm Broadcom in late 2023 is a significant factor in these good results, the Nutanix CEO claims:

More doors are opening because a lot of people are concerned about the behaviour of Broadcom. So they are looking at how they can reduce their risk and dependency.

We have definitely seen a tick-up of interest. With Broadcom's reputation for cost-cutting, customers are opening their eyes.

During the press conference, Ramaswami was pushed on recent enticements for both CIOs and the Nutanix channel, as well as new partnerships and went on to admit the company doesn't have a clear vision of how much benefit it is drawing from the VMware acquisition:

It is hard to determine how much of this I would attribute to Broadcom and how much is something that we would have achieved anyway. I think both are significant drivers for us.

Broadcom received the regulatory approval and completed the $69 billion acquisition in November 2023. The VMware acquisition, which Dell formerly owned, was announced in May 2022 but went through a lengthy approval process by national regulators, with China being the final major market to give the deal the nod. Just days after completing the acquisition, Broadcom announced that 1,300 VMware staff were being laid off, completing a tough 2023 for technology vendor employees. Broadcom also announced a strategic review of VMware. Weeks after the acquisition was completed, VMware CEO Raghu Raghuram said at VMware’s Explore event in Barcelona

We will accelerate the pace of innovation through step-up and R&D investments. Next, we intend to invest much more in the VMware ecosystem with our partners, the value-added resellers, distributors, OEMs, service providers and global system integrators in order to make our products more available and much easier to deploy and consume. Finally, we will make ourselves and our products easier to deal with.

Digital leadership response 

It is the nature of CEOs and their role to expose chinks in the armour of their rivals in the constant demand for growth in the enterprise technology industry. So, is there any truth to the Nutanix CEO's claims? Asking digital leaders if the changes in licence models and the cull of 56 products by VMWare have had an impact on their organizations, CIOs reported they were struggling to get price quotes from VMware. Whilst a financial services CIO said they had seen prices rise by five times. A peer also in financial services said: 

If it is anything like the Broadcom experience, I'm expecting a 3x uplift. Plan B is in full swing to look at alternatives for the different types of products we currently have running on the VMWare stack.

One commercial CIO that has already made the move away from VMware said he had seen a tripling in pricing and only has one instance of VMware due to the application dictating this environment. 

Despite the disruption surrounding VMware, parent company Broadcom is in rude health and reported in March 2024 that it expects $10 billion in revenue from AI related chips, though its stock value did decrease. Hock Tan, CEO of Broadcom told international news service Reuters that $7 billion of their AI chip revenue would come from just two clients. Industry analysts believe that Broadcom is designing custom AI chips for social media firm Meta Platforms and Google. 

Looking ahead

If Ramaswami is right, then Nutanix has to seize the moment and win business from VMware. The CEO said: 

We have done three things from our end: we have continued to work on our awareness with customers, the second is helping customers migrate, and we are also providing our partners with incentives to bring customers who are new to us, so we have a multi-layered approach.

In the past I have challenged Ramaswami and his predecessor that Nutanix has a brand problem with digital leaders, and once again raised this with the CEO: 

We are getting the message out and we are having a lot more CIO level conversations than we have had in the past, but there is a huge group of people who have built their career on VMware, so the practitioner level is also very important.

Ramaswami said the partnership with Cisco, announced in August 2023, is part of that awareness campaign, but admitted: 

Cisco will be relatively small for us this fiscal year; we expect it to grow next fiscal year.

Days after the quarter two update, Nutanix also announced an agreement with Indian systems integrator Wipro. 

My take

Our own community of digital leaders is clearly concerned about the Broadcom acquisition of VMware, so Ramaswami clearly has his finger on the pulse. It is unlikely that VMware will be ignorant of these perception challenges either. With major clients such as automotive brand Audi and global services firm Rentokil, any frustrations will be clearly voiced and no doubt acted on. Nutanix believes they have an opportunity, and perhaps the playing field has been levelled slightly, but timing is everything in business, and both sides are known for being responsive. 

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