Fortinet(FTNT)2024-12-12 06:09Company and Industry Overview * Company: Fortinet, Inc. (NASDAQ: FTNT) * Industry: Network Security, Unified SASE, SecOps Key Points and Arguments 1. Secure Networking Growth: Fortinet expects a normalized growth rate of approximately 7% in the network security market, driven by factors such as: * OT Market: Robust growth in the Operational Technology (OT) market, where Fortinet has a leadership position. * Regulatory Influence: Increased regulatory influence, including cyber insurance companies and governmental regulators, driving new firewall use cases. * Convergence of Switches and Access Points: Strong customer demand for automation and consolidation functions provided by switches and access points. * Firewall Upgrade Cycle: A significant firewall upgrade cycle in 2025 due to end of support in 2026 for products announced in 2021, potentially contributing 450 million in incremental product billings. 2. Unified SASE: Fortinet's SASE offering includes SSE (Secure Service Edge), SD-WAN, and other cloud functionalities. SD-WAN currently represents over half of the unified SASE mix, with SSE expected to be the fastest-growing component. 3. SecOps: Fortinet leverages its data lake to aggregate security data from various sources and offer features like SIEM and SOAR, providing a comprehensive view of security across different geolocations and devices. 4. Financial Targets: Fortinet expects a greater than 12% CAGR on billings and revenue over the next three to five years, driven by growth in all three business segments. 5. Product Gross Margins: Fortinet's product gross margins have improved due to factors such as reduced supply chain costs and inventory optimization. Normalized product gross margins are expected to be in the 65% to 67% range. 6. Operating Margins: Fortinet has raised its long-term operating margin target to 30% plus, driven by factors such as investment in go-to-market initiatives, channel development, and leveraging cost advantages. 7. Security Spending Environment: Both Michael Xie and Keith Jensen agree that security remains a top priority for enterprise customers, driven by the increasing threat environment and the need for robust cybersecurity solutions. Additional Important Points * Fortinet has built a significant number of Points of Presence (PoPs) and data centers to support its SASE offerings, providing operational and economic advantages. * Fortinet's sales team and channel partners are well-positioned to capitalize on the growing demand for cybersecurity solutions. * The threat environment remains elevated, and CISOs and CIOs are actively seeking solutions to protect their organizations.