Nutanix under cartel probe in Hong Kong ahead of $238-million US IPO on Nasdaq today

30 September Yonnex Li

Nutanix, a US software company set to go public on Nasdaq today, is being investigated by Hong Kong’s competition authority for suspected cartel behavior in an advanced probe that involved dawn raids and the summoning of executives for questioning, MLex has learned.

A spokeswoman from the San Jose, California-based company confirmed that it is among “a group of companies” that have been contacted by the regulator.

The case, which has been going on for at least a couple of months, is arousing a lot of attention from industry players — including Nutanix’s rivals, hardware makers and systems integrators — about their traditional tendering and quotation practices. Messages are spreading around the sector that extra caution is now warranted in their dealings with one another, it is understood.

Nutanix is a engaged in the selling of hyperconverged infrastructure systems that combine server, storage and virtualization software in a single machine. It competes with EMC’s VMware, Cisco, SimpliVity and Huawei in Hong Kong’s enterprise solutions market.

These cloud companies often work with channel partners who will sell their technologies to corporate customers. Their partners include systems integrators that build computing systems for clients by combining hardware and software products. In Hong Kong, PCCW, Expert Systems and Jardine OneSolution, or JOS, are among the popular channel partners.

It is said that Nutanix has faced complaints from one or more of the channel partners — very likely systems integrators — about its “deal-registration flow.” The vendor allegedly allows online deal registration but restricts the registration to only one partner in a case that may amount to allegations of bid rigging.

A Nutanix sales executive is understood to have been summoned by the commission for questioning. The regulator has also launched dawn raids in the past couple of months targeting the technology sector, it is understood.

“Nutanix is among a group of companies that received an information request from the Hong Kong Competition Commission,” company spokeswoman Luica Mak told MLex in an e-mailed response to questions. “The company is cooperating with the request.”

Deal registration is common in the IT industry where a channel partner informs the vendor — such as Nutanix — about a lead and that partner will be given priority for it. Such a program allows sales-channel controls and lowers the chance for partners to compete against one another. It also allows channel partners to work with a client without having to worry about another company trying to offer the same product at a lower price.

Details of the investigation have not yet been announced by the commission. Dawn raids, however, may suggest that the investigation into the technology industry is in an advanced stage. On Sept. 21, the agency responded to an enquiry by MLex, saying that it has conducted “a number of searches of premises,” without elaborating.

In Hong Kong, it is understood to be a common practice for tech companies to line up with one another for a project, even before a formal tendering procedure is launched.

For example, a corporate client launching a tender for hardware or software supplies may include certain unique requirements, on top of the general criteria, in order to produce tendering results biased toward its favored supplier. Competing vendors may therefore easily lose out in the game, or be “out-of-spec” as the term is known in the industry, even if it appears that a fair tendering process is in place.

At the same time, the favored vendor may have its own desired systems-integrating partner such that it will only offer its products to that partner, or offer them at more competitive prices, so that the integrator may beat out its rivals and win contracts from the corporate client.

Sales executives at tech companies are tipping off one another about the risk of the practices following the Nutanix case, it is understood.

The Hong Kong competition authority late yesterday warned businesses of the risk of bid rigging following the conclusion of a major court case in the city.

“Bid-rigging is considered to be a serious anti-competitive conduct and combating bid-rigging cartels is an enforcement priority for the commission,” it said in a statement. “Those contemplating rigging a bid should desist, while those already involved in rigging bids should consider approaching the commission for leniency.”

Nutanix is on track to begin trading on Nasdaq today, after pricing its initial public offering at $238 million. The company sold 14.87 million shares at $16 each, giving it a valuation of $2.18 billion. The company has yet to make disclosure to the US Securities and Exchange Commission about the contacts by the Hong Kong regulator.

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