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Nutanix Transforming to Software-based Business Model

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Benefits of software-centric business

Leading enterprise solution provider Nutanix (NTNX) is gradually shifting to software-centric business by slowly eliminating its hardware business. The software business, which contributes ~50% of its total revenue, has maintained stable growth, driven by contract wins, increased customer spending, a strong product portfolio, and the integration of servers, virtualization, storage, and networking into one solution. Its one-touch software solution, which enhances clients’ performance and saves time, may drive Nutanix’s gross margin as its hardware sales decline.

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Software contribution

The graph above shows Nutanix’ software revenue growth over the last five quarters. The business segment has grown at a compound annual rate of 9%.

In fiscal 2Q18, the company reported $287 million in revenue from its software business, indicating a staggering 41% rise YoY (year-over-year). In fiscal 1H18, it had software revenue of $283 million, compared with $208 million in 1H17. Billings from the software segment rose 47% YoY to $151 million.

In 2Q18, hardware revenue increased 41% YoY to $78 million. The company believes that its plan to completely exit from the hardware business will slow down revenue growth. Nutanix is constantly launching new products, such as AOS 5.5, and acquiring new companies to grow its software business. The company’s partnership with personal computer makers such as Dell (DVMT) and virtual desktop providers such as Citrix (CTXS) may further boost its software revenue.

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