Fortinet Shares Rise 11% on Strong SD-WAN Story

Software-defined wide-area networking (SD-WAN) took center stage during Fortinet’s third-quarter 2019 earnings report last night. In opening remarks on the conference call, founder and CEO Ken Xie credited “significant adoption of our SD-WAN solution” for strong results, including a 21 percent year-over-year increase in overall revenue to $547.5 million.

Fortinet shares rallied on the news. In early Friday trading, they blasted off $8.80 (11%) to $90.36.

Fortinet’s accounting doesn’t distinguish its SD-WAN products from the rest of its gear, but execs did say that FortiGate firewalls equipped with SD-WAN capabilities accounted for eight third-quarter deals that topped $1 million, up from one such deal this time last year.

Fortinet’s success isn’t surprising. As Futuriom recently noted, Fortinet has been aggressive in adopting secure SD-WAN as its strategy. Of course, it’s not alone: The pairing of SD-WAN and security has been an ongoing industry trend among router and firewall vendors, since security is viewed by many enterprise users as a main driver toward SD-WAN adoption.

Plainly, survival for firewall firms depends on how well they can turn themselves into SD-WAN assets. Here, Xie and company are quick to place Fortinet where they see the sweet spot of secure SD-WAN — network access.

Have Some Chips with That Firewall

Fortinet claims its weapon in the race to SD-WAN domination is its ASIC, dubbed the security processing unit (SPU) or system-on-a-chip 4 (SoC4). According to Xie, having invested in its own chips years ago now gives Fortinet an edge in performance, features, and even economies of scale in manufacturing.

As 5G, IoT, and various other technologies emerge in edge computing, Fortinet says it will be able to adapt quickly by adding functions to its ASIC without reducing performance in live networks.

Xie said it all adds up to a big leap ahead of rivals such as Cisco, Check Point, Palo Alto Networks, and VMware — all named specifically in Fortinet’s announcement of its FortiGate 60F Next-Generation Firewall— cleverly released on the same day as the earnings report.

Interestingly, Zscaler was left out of the vendor’s in-house test results, though it was mentioned several times by analysts during the Q&A. Execs acknowledged coming up against Zscaler, particularly in service provider networks.

What's Not to Love?

Fortinet may be barreling ahead, but there are a few places where work remains to be done. One of these is Asia-Pac sales, which weren’t as robust as those of other regions — including the Americas and EMEA, where revenue was up 24 percent and 21 percent year-over-year, respectively.

“It’s something to work on,” admitted Fortinet CFO Keith Jensen. He noted the company will be looking to hire sales expertise in Asia in the next months.

Then there’s the integration of technology from endpoint security company enSilo, which Fortinet purchased recently for an undisclosed sum. enSilo was a partner of Fortinet’s, and execs say its team and technology should blend well with those of its new parent. We'll see.

All told, though, it was tough to find flaws in Fortinet’s report last night. CFO Jensen reflected the general tone when he remarked on the upcoming ten-year anniversary (November 18) of Fortinet’s IPO: “Ken, back then, you closed the day with a market cap of $1 billion. Today, your market cap is over $14 billion. Nicely done.”