There was good and bad news from two of the rising challengers to the information technology infrastructure heavyweights today, as Nutanix Inc. reported strong revenue and earnings growth in its fiscal first quarter while Pure Storage Inc. beat estimates but issued a weak forecast for the year.

Shares of Nutanix jumped 2.5% in early after-hours trading as quarterly revenue grew 18%, to $511.1 million, from $433.6 million a year ago, well ahead of analysts’ estimates of $500.8 million.

Annual contract value, or the total annualized value of a contract outside of professional services and hardware, grew 24% year-over-year, to $287.2 million, versus the company’s earlier guidance of $260 million. Nutanix’s net loss fell to $15.8 million from a loss of $99.5 million a year ago. The loss per share of seven cents was down from a 44-cent loss a year ago. Adjusted earnings of 29 cents a share were well ahead of analysts’ estimates of 18 cents.

“The uncertain macro backdrop was largely unchanged; however, we saw a study demand for solutions driven by digital transformation and infrastructure modernization initiatives,” said Chief Executive Rajiv Ramaswami (pictured).

‘Simply great products’

“Nutanix is simply shipping great products that the market is responding to,” said Steve McDowell, principal analyst and founding partner of NAND Research LLC. He noted that the company is also likely benefiting from customer uncertainty around the future of VMware Inc. under new owner Broadcom Inc.

“There’s little question that Nutanix took a lot of business that would have gone to VMware,” he said. “That’s going to continue for the next several quarters as Broadcom digests VMware.”

Ramaswami largely agreed. “VMware has historically been a tech leader and an innovator, but this acquisition is changing the relationship that customers will have with the company going forward,” he said during a briefing with journalists and analysts. “Broadcom’s business model has been to maximize the assets that they acquire, and they’ve said publicly that’s what they’re going to do with VMware. For customers who are looking to reduce their risk, we are a good alternative.”

Chief Financial Officer Rukmini Sivaraman said Nutanix’s performance was boosted by stronger-than-expected sales to the federal government and healthy renewals. Sales were also boosted by a recently announced partnership with Cisco Systems Inc. under which Cisco will sell its own managed computing and networking infrastructure with the Nutanix Cloud Platform. Nutanix is also benefiting from an earlier partnership with IBM Corp. subsidiary Red Hat, which has both companies recommend each other’s products as components of a full cloud stack.

“Red Hat is a complete offering that includes a full-fledged modern apps platform along with a leading infrastructure platform from us,” Ramaswami said. “Cisco is a best-in-class go-to-market engine and very strong in driving partner channels. We love the fact that they’re reselling our product and compensating their sellers and their channel partners.”

AI boost

The quarter also saw the first sale of GPT-in-a-Box, which Nutanix describes as a full-stack, software-defined artificial intelligence-ready platform that includes all the elements needed to build AI-ready infrastructure.

“We’ve seen good inbound interest from customers and ecosystem partners,” for the offering, Ramaswami said, noting that the first customer is a federal agency that’s using the platform for document retrieval. “We have a significant pipeline of opportunities and it’s growing.”

Nutanix issued guidance that was in line with earlier expectations. It sees revenues in the range of $2.095 billion to $2.125 billion against the consensus estimate of $2.1 billion. Its stock has risen nearly 60% this year compared with an 18.5% increase in the broader S&P 500.

Pure forecast disappoints

The news wasn’t as good from flash storage maker Pure Storage, whose shares initially dropped more than 15% after-hours on weak guidance. The numbers for the fiscal third quarter were good as a whole, with a 13% rise in revenue, to $762.8 million, on a 26% increase in subscription services revenue. Earnings of 21 cents a share beat the consensus estimate of 11 cents and swung from a loss in the year-ago quarter.

However, the company’s forecasts of $784 million in fourth-quarter revenue and $2.82 billion for the full fiscal year were well below consensus estimates of $919 million and $2.96 billion.

The company blamed the lowered estimates on delays in a single contract with a telecommunications customer and the strength of its Evergreen storage-as-a-service portfolio, which covers not only customers’ storage costs but also fixed expenses such as power and rack space.

The shift from large-contract equipment sales to long-term services, combined with the delay in the telco contract, canceled out what would have been 7% revenue growth for the year, said Chief Financial Officer Kevan Krysler. He noted that sales of the Evergreen plans doubled this year and “will drive long-term growth for Pure.”

‘Knife fight in a phone booth’

CEO Charles Giancarlo acknowledged that competition is intense, likening it to “a knife fight in a phone booth. We intend to be very aggressive in pricing, particularly as we penetrate the lower end of the disk market,” he said. “We are going to use our advantage in gross margins to add on to our market share.” Pure Storage’s 74% gross margin for the quarter rose from 70.9% a year earlier.

NAND Research’s McDowell said Pure is growing in all the right places. “I really hate that its earnings are being overshadowed by its downbeat forecast,” he said. “Pure grew by double digits when HPE’s storage business was flat and NetApp’s was down.” Although the broader trend in storage won’t be clear until Dell Technologies Inc. announces earnings tomorrow, he said, “I suspect Pure outgrew the market yet again.”

Pure said it benefited from strong sales to customers who are upgrading storage to accommodate the data-hungry needs of artificial intelligence training models. “AI continues to be a strong segment for us,” said Chief Technology Officer Rob Lee.

That’s good for this quarter but makes forecasting difficult, McDowell said. “The problem with AI is that we’re entering a cycle of rapid build-up followed by a long digestion period,” he said. “Pure’s guidance may reflect that we’re entering a digestion period for the storage purchased for AI.”

Photo: Nutanix/Twitter