Wipro: Partnership With Nutanix Is What The Doctor Ordered

Summary

• On April 29, Wipro (WIT) and Nutanix announced Digital Database Services (DDS) partnership that is supported by Nutanix Era and Nutanix HCI software.
• For Wipro, this is clearly an opportunity to differentiate itself on two competitive fronts, where such Digital opportunity does not exist.
• For Wipro, we envision anywhere between $120-$180 MM in revenue during the first full year (12 months) of implementation.

We rarely write separate articles on partnerships but this one is too valuable to leave without attention. It is good to know that such alliances still take place, despite the economic turbulence. Below is our take on the specifics and benefits of this partnership.

About the Partnership and Its Benefits:

• On April 29, Wipro (NYSE:WIT) and Nutanix announced Digital Database Services (NYSE:DDS) partnership that is supported by Nutanix Era and Nutanix HCI software. This new entity will manage databases, optimizing time and effort of various IT teams. DDS allows enterprises and users to provision and manage databases just-in-time, without prior knowledge of hardware and database software. This results in accelerated application release time, allowing IT database administrators to concentrate on innovation and beyond. We believe that Oracle used to have something of a kind as a prior generation, but this new partnership is very different and is definitely ahead of its age.
• The DDS offering empowers clients to merge database workloads onto a shared infrastructure to manage database sprawl. It focuses on cost-effectiveness and scalability across the enterprise by automating and simplifying database administration. In our view, this is a multi-billion dollar potential that is currently lacking in the market; in other words, we've seen it exist separately, but never as a unified force.
• For Wipro, this is clearly an opportunity to differentiate itself on two competitive fronts, where such Digital opportunity does not exist. On one hand, the company immediately jumps into a different league when compared to other Indian players, such as Infosys, Tata Consultancy, and even Cognizant. On another hand, it wins against the big league companies, such as Accenture and even IBM. Now, it looks like other competitors may have to create such databases from scratch, because there aren't too many partnership opportunities remaining.
• For Wipro (and Nutanix, to a degree), there is life beyond cloud and SaaS model. There is so much discussion about enhancing these two workstreams and investing in them that, occasionally, we believe, companies should take a third path and find a revenue-generating opportunity others don't have.
• For Wipro, we envision anywhere between $120-$180 MM in revenue during the first full year (12 months) of implementation, though it's unclear if it will start this quarter or next. This annual run rate may rise in the future years. Note that we remain bearish on Wipro's overall business prospects and at this point we are not yet ready to change our thesis. Recall that Wipro faces a meaningful slowdown in consulting activity, which - no matter how successful DDS is in 2020-21 - still remains the core headwind.
• We also believe that Wipro may recruit new clients thanks to DDS, albeit it is too early to quantify these incremental effects.
• Nutanix's position is in line with its deal-making strategy (see below), which may temporarily take a pause in 2020. In fact, we believe that a partnership with Wipro is all we will see from Nutanix in 2020.

August 2016	PernixData	Software for virtualizing server-side flash memory and random-access memory.
August 2016	Calm.io	DevOps automation platform.
March 2018	Netsil	Cloud app monitoring startup.
March 2018	Minjar	The maker of Botmetric, a service that makes the usage of public clouds more efficient and cost effective.
August 2018	MainFrame2 Inc.	Cloud-based Windows desktop and application delivery.

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Source: Company website

About Wipro:

Wipro is the information technology and consulting company that sources a lot of talent from India. The IT Services business provides digital strategy advisory, customer centric design, technology consulting, re-engineering and maintenance, systems integration services, among others, in addition to R&D around hardware and software design. The IT Products segment offers third-party products, focused on IT system integration services. Among some products are computing and storage, as well as network solutions and enterprise information security.

About Nutanix:

Nutanix offers an enterprise cloud platform that converges silos of server and storage into an integrated solution. Among its solutions are various software product families, such as Acropolis and Prism. Acropolis includes its distributed storage fabric delivering enterprise-grade data management features, as well as a built-in hypervisor and an application mobility fabric enabling application placement. A US company, it also has extensive operations in EMEA and Asia-Pacific.

Risks to Thesis:

Tariff risks: The trade threat is substantially tied to macro risks, which is mainly manifested via tariffs; hence, there is inevitable caution that companies have toward investments as a result.

Technological risks: Failure along any step in the supply chain can lead not only to business slowdown, but to a branding risk, from which Wipro (and NTNX) may struggle to recover.

Regulatory risks: The tech sector cannot escape these risks, particularly when it comes to cloud and SaaS models.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.