Nutanix's Amazon Cloud Killer Delayed by Engineering Issues

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(Bloomberg) -- Nutanix Inc. planned to release a public cloud offering to rival market leader Amazon Web Services in the second half of 2018. But engineering challenges have put the launch timing in doubt.

Chief Executive Officer Dheeraj Pandey has found that targeting Amazon.com Inc. is harder than expected, even for an underdog like him.

San Jose, California-based Nutanix pioneered a type of enterprise computing, known as hyperconverged systems, that combines server, storage and virtualization software in a single machine. The company was the second best-performing initial public offering of 2016. Lately Nutanix’s stock has hovered near record highs on investor excitement that it will be able to notch massive growth rates with its upcoming Xi Cloud Services product to compete against Amazon, Microsoft Corp. and Alphabet Inc.’s Google. Stretching beyond its core business hasn’t been easy, however.

Nutanix will be a rare new entrant in the public cloud battle, where Amazon has a commanding lead and Microsoft and Google have sought to catch up. International Business Machines Corp. and Oracle Corp. have stayed in the fight, but Hewlett Packard Enterprise Co. abandoned its public cloud ambitions when it decided to shut down Helion in 2015.

“We have extended the timeline and have added the teams to do it right,” Jennifer Massaro, a spokeswoman for Nutanix, wrote in an email. “We are taking the truer but longer path to Xi.”

Nutanix fell as much as 6.8 percent after Bloomberg’s report. The shares were at $49.49 during afternoon trading in New York. The stock has more than doubled in the past year.

It’s unclear if the launch will slip into 2019. But Pandey said adopting the agile engineering needed for cloud computing has been particularly difficult.

“It’s been a harder problem than we thought,” he said in an interview. “It was less to do with products, but it’s the ‘how’ of engineering. How do you break things down, how do you do smaller releases, how do you have multiple parallel streams of engineering going on at the same time?”

The challenge is to keep data centers, cloud servers, and software constantly running and available over the internet, and accessible to a wide variety of customers in multiple countries as Nutanix releases patches and updates. Any engineering delays could stretch the timeline for this year’s planned launch, Pandey said. Much of Nutanix’s experience has been in building private cloud networks through an operating system corporate clients run on their own hardware -- a business that rivals HPE, VMware Inc. and Dell Technologies Inc.

Amazon invests billions of dollars a year to broaden the capabilities and capacity of its public cloud, which houses data from different tenants at huge centralized centers around the world.

Nutanix has taken a different approach, focusing on small and mid-size data centers that share space with other companies. Pandey is wary of making the same mistakes in the cloud that HPE did, such as not having a clear strategy. Nutanix plans to sell its public cloud services to existing customers including JetBlue Airways Corp., Toyota Motor Corp., L’Oreal SA and AT&T Inc. -- in 10 of the world’s largest economies.

There will be an additional cloud service for existing U.S. government workloads. Nutanix makes about 15 percent of its sales from governments, particularly at the state and federal levels in the U.S., Pandey said.

Pandey said he’s looking at the Pentagon’s Joint Enterprise Defense Infrastructure Cloud Program, or JEDI, contract, which could be worth $10 billion over many years. Nutanix is open to working with some of its larger partners on the contract, but will let them take the lead.

Pandey pegged global data infrastructure spending as a $600 billion market, shrugging off worries of an Amazon fight. Rather than chasing the outright volume of AWS, Nutanix’s public cloud will be a backup for customers’ existing systems and help connect remote offices and other business locations.

“It’s the underserved customer that we keep focusing on as opposed to worrying about the noise of what everybody else is doing,” Pandey said. “So I don’t have to worry about competition.”

Nutanix’s Xi is a different model than Amazon’s, he said. “That’s how we disrupt Amazon, by changing the turf on cloud computing, not trying to be more of them.”

©2018 Bloomberg L.P.

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