Detailed narrative
AI as a durable demand tailwind across all three pillars
Management framed AI as accelerating the 26-year convergence of networking and security, driving demand simultaneously for secure networking (billings +32%), Unified SASE (+31%), and AI-driven security operations (+23%). Ken Xie cited 15 years and 500+ patents of AI investment. AI both expands the attack surface (shadow AI, agentic east-west traffic requiring internal segmentation) and raises throughput/performance requirements, which management argues favors Fortinet's ASIC-accelerated appliances.
Combined Unified SASE and SecOps grew 28%.
AI data center build-out and the hardware/ASIC advantage
Product revenue grew 41% to $645M as customers shifted to higher-performance FortiGate appliances, including AI-infrastructure deployments needing throughput, segmentation and secure connectivity. Ken Xie claimed Fortinet is the only cybersecurity vendor building its own ASIC from day one, yielding roughly 3-5x better performance at the same cost across top functions with lower energy use, and no competitor matches it on performance or cost — including the FortiGate 3500G and 400G announced today.
Management said AI data-center security is still early-stage, ramping after infrastructure is built and applications deploy.
OT security acceleration
OT billings grew over 70% as customers prioritized protecting critical infrastructure amid heightened ransomware and nation-state activity plus rapid digitalization for AI. Ken Xie positioned Fortinet as the sole leader securing the lower layers of the 'AI 5-layer cake' (energy, infrastructure), much of it deployed in the field requiring real-time edge processing — reinforcing the edge-over-cloud thesis.
Unified SASE, Sovereign SASE, and the new bundle
Unified SASE billings grew 31% and now represent about 25% of total billings, with Fortinet a top-3 player. FortiSASE adoption reached 18% of large-enterprise customers (up from ~16% prior quarter, +45% growth). Management highlighted three differentiators: single FortiOS across firewall/SD-WAN/SASE, own global cloud infrastructure at roughly one-third the TCO of peers, and a larger TAM via sovereign/private SASE with no comparable competitor offering.
Sovereign SASE is estimated as large as or larger than cloud-based SASE, with European telecom service providers ramping it. A new SD-WAN and SASE services bundle (Slide 14) was introduced to accelerate adoption and future services revenue.
Margins, cash flow and capital return
Non-GAAP gross margin of 81% beat expectations despite the product-mix shift (GAAP 80.3%); non-GAAP operating margin was a Q1-record 35.8% (+160 bps), GAAP 31.4%. Record free cash flow of $1.01B (adjusted $1.07B, +27%, 58% margin). Fortinet repurchased 10.6M shares for $827M in Q1 and 1.9M more for $146M quarter-to-date, leaving ~$766M authorization. Non-GAAP EPS +41% to $0.82; GAAP EPS +29% to $0.72.
Services lag and leading indicators
Service revenue grew only 11% to $1.21B, but management pointed to service billings reaccelerating to 27%, current service billings +13%, deferred revenue +15%, and SecOps ARR growth as leading indicators of future services revenue. CFO Christiane Ohlgart stressed the balance-sheet-to-revenue conversion 'takes longer,' and the full-year services guide was raised at the low end; services growth is expected to pick up in H2 driven by accelerating product revenue.
Supply chain, pricing and market share
Management drew a parallel to the post-COVID supply era (Slides 24-25), arguing its direct manufacturing/operations model, larger scale (~60% unit market share in network security systems) and better procurement position it to gain share again during the memory-shortage cycle. Pricing policy is to maintain (not expand) gross margin, adjusting prices up as component costs rise and down when they ease.
Unlike COVID, management sees no meaningful demand pull-forward📎 this time and says channel inventory is not elevated.