Supply challenges hurt Nutanix's guidance and its stock plunges

Supply challenges hurt Nutanix’s guidance and its stock plunges

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Data center infrastructure supplier Nutanix Inc. found itself down in the dumps today after it offered lower guidance for the current quarter.

The company’s stock plummeted by more than 30% in extended trading after highlighting serious supply chain issues it’s struggling with.

The company actually did quite well in the quarter just gone. It reported a fiscal third-quarter loss of $111.6 million, with a loss before certain costs such as stock compensation coming to 5 cents per share. Revenue for the period rose 17% from a year ago, to $403.7 million.

Wall Street had been looking for an adjusted loss of 22 cents per share on revenue of $398.3 million, so it was a decent earnings beat.

However, Nutanix’s investors were clearly more focused on the future, and unfortunately its immediate prospects don’t look so bright. Executives told analysts on a call they’re looking for fourth-quarter revenue in a range of $340 million to $360 million, with annual contract value billings of $175 million to $185 million. That was way below the forecast, with Wall Street targeting much higher revenue of $439 million and billings of $215.8 million.

Nutanix said the lower forecast means it has to lower its fiscal 2022 guidance too. It now expects full-year revenue of between $1.54 billion and $1.56 billion, down from a previous forecast of $1.63 billion.

Nutanix Chief Executive Rajiv Ramaswami (pictured) told analysts on a call that late in the third quarter the company saw an “unexpected impact” from challenges that limited upside during the quarter and also affected its fourth-quarter outlook.

“Increased supply chain delays with our hardware partners account for the significant majority of the impact to our outlook, and higher-than-expected sales rep attrition in the third quarter was also a factor,” Ramaswami said. “We don’t believe these challenges reflect any change in demand for our hybrid multicloud platform, and we remain focused on mitigating the impact of these issues and continuing to execute on the opportunity in front of us.”

Nutanix sells a software-defined hyperconverged infrastructure or HCI stack that integrates compute, storage and networking components into a single appliance or cloud service. The company is not the only tech hardware supplier that’s struggling with supply constraints. Last week, the networking firm Cisco Systems Inc. said that it’s also struggling to obtain supplies because of COVID-19-related lockdowns in China. It too, offered a much lower forecast for the current quarter.

Nutanix in recent years has attempted to shift away from its hardware roots, with a focus on shifting to “hyperconvergence” software that runs on third-party servers and systems. However, Cisco pointed out last week that its software sales are being held up because customers lack the relevant hardware to run it.

It’s not clear if Nutanix’s software business is suffering from similar problems, but that may well be the case. What we do know is that Nutanix’s business is fairly balanced. During the third quarter, hardware sales came to $199.6 million, while support, entitlements and other services added $204 million.

“It must have been a frustrating day over at Nutanix, as the company performed remarkably well over the past quarter, only for that performance to be overshadowed by weak guidance,” said Steve McDowell of Moor Insights & Strategy.

The analyst said there’s a lot of demand for Nutanix’s products and its real challenge is the supply chain constraints faced not by it, but key original equipment manufacturer partners. “Nutanix didn’t name the partners who are suffering supply chain issues, but I take this as an ominous sign for HPE’s and Lenovo’s upcoming earnings, as they are the biggest companies it works with,” McDowell added.

Longer-term, the analyst said, Nutanix’s prospects are much brighter. The company’s fundamentals remain solid, he explained, and there’s every indication that it’s seeing growing demand for its products. Nutanix is also showing strong growth where it counts, with its annual recurring revenue up by 46%, to $1.1 billion.

“That’s a phenomenal number,” McDowell continued. “And so is its 18% top-line revenue growth. The company should be proud of its accomplishments.”

Photo: SiliconANGLE

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