Cisco & Nutanix - A Case of "Try Before You Buy"?

Cisco and Nutanix have announced a strategic partnership that will see Cisco selling a packaged solution of Cisco UCS hardware and Nutanix cloud software. Is this move a prequel to Cisco acquiring Nutanix in some form of a “try before you buy” process?

Update: as of 12th September 2023, Cisco has deprecated the HyperFlex Data Platform (HXDP) with an end-of-life notice (see link here). It appears the strategic direction for Cisco and HCI is Nutanix. See the section below on HyperFlex for more information.

Background

Cisco Systems, probably more well-known for its networking products, first launched the Unified Computing System (UCS) in 2009. Solutions are available in either rackmount or blade systems.

Nutanix, founded in 2009, is a vendor of on-premises cloud software solutions based either on VMware vSphere virtualisation or AHV, Nutanix’s own in-house developed solution based on KVM. The Nutanix ecosystem also encompasses storage and application management to provide an entire private cloud platform.

Nutanix originally started as a hardware vendor but moved to a software model and established partnerships with server vendors. Over the years, the company has partnered with Dell, Lenovo and EMC.

Cisco and Nutanix

The Nutanix platform already has support for Cisco, although not with an official partnership agreement. In August 2016, Nutanix announced that Acropolis and Prism software would be supported on UCS C-Series systems without an OEM agreement in place. This announcement has since been deleted from the Nutanix website, but a copy can be viewed via the Wayback Machine.

With the announcement on 28 August 2023, Cisco will now officially package and resell the UCS C-Series with Nutanix Cloud Platform. This gives Nutanix an avenue into Cisco customers and a certified solution that will be directly supported by Cisco.

HyperFlex

What’s not clear yet is how this partnership announcement affects Cisco HyperFlex. HyperFIex is a hyper-converged solution based on Springpath, which was acquired by Cisco in 2017.

The Nutanix ecosystem is much more mature and further developed than the capabilities offered by HyperFlex, and it could be that Cisco is struggling against competition from VMware and the vSphere ecosystem (which is also mature and highly developed).

Note: We’ve left the above paragraphs in place as this was the original text when this article was first published in August 2023. Revised text below.

With the Cisco EOL announcement issued on 12th September 2023, there’s now no confusion as to the future of HyperFlex. HXDP, the HyperFlex Data Platform is now deprecated with the end-of-life notice. Customers are directed to move forward with Nutanix software once the current licensing period for HXDP expires. Further EOL notices (listed here) indicate hardware-specific EOL too.

The Nutanix ecosystem is the clearly the future for Cisco HCI solutions.

Broadcom

With the impending acquisition of VMware by Broadcom, Nutanix might look an attractive option for purchase at only $7.3 billion (excluding any additional goodwill pricing). It’s likely that Broadcom will complete the VMware transaction by the end of 2023, pending any intervention by Chinese regulators. With uncertainty in precisely what the game plan of Broadcom will be, a partner-to-buy strategy from Cisco might make sense at this time.

Value for Money

Is Nutanix worth upwards of $10 billion? From the FY2023 financial data just released, we’ve updated our graphs to show the annual profit and loss for FY2017 through to FY2023. As the data shows, for every year as a public company, Nutanix’s operating expenses alone have been greater than revenue earned, except for the currently reported period. Over the past five years, the company has spent an average of over $1 billion a year on sales and marketing. As a public company, Nutanix has never made a profit.

However, if the partnership with Cisco is successful and Nutanix can drastically slash the sales and marketing budget, there’s a chance of becoming profitable. Revenue has grown annually at a steady rate. It’s the expenses that are killing the business.

One other final thought on this – the share buy-back that was also announced with the financial data is a red herring in this discussion. Nutanix already incurs over $300 million annually in stock-based compensation, so the buy-back is just a way of dealing with stock dilution.

The Architect’s View®

Rumours of Cisco acquiring Nutanix have been around for years. Last year, there was a whisper of HPE buying the company, but that deal either fell apart or never existed in the first place. We don’t follow Cisco, but we do look at the broader infrastructure market in general and have been forecasting that consolidation could be on the cards.

The public cloud has gained all the growth in technology over the last decade, with the legacy infrastructure vendors looking at flat business revenue and no growth. This is despite moves to transform those businesses to an operational expenditure model.

Consolidation is one option to survive the challenge from hyper-scalers, with partnerships a good place to see if the acquisition path would work. The most significant risk for both Cisco and Nutanix in any merger is, of course, the loss of business from other hardware partners. We don’t have visibility of this, but the risk could be high. We will be watching to see what develops.