Fortinet (FTNT) Q4 FY25 earnings call: guidance and Q&A

What drove the strong Unified SASE billings and overall Q4 performance, and what gives confidence for 2026 guidance?

Ken Xie highlighted three key advantages for Unified SASE: Sovereign SASE market leadership (no major competitors), integrated FortiOS (SD-WAN, SASE, network security on one OS), and cost advantage from long-term infrastructure investment (1/3 TCO). Christiane Ohlgart added that strong execution was broad-based across enterprise, OT, SASE, and AI, providing confidence for continued growth. John Whittle emphasized competitive advantages, market growth, and diversification.

“I believe the Sovereign SASE market is probably even bigger than the current Public SASE. That's all the other vendors doing right now. But we don't see any of them try to get in the Sovereign SASE or have the function to supporting Sovereign SASE.”

asked by Shaul Eyal · answered by Ken Xie

What are Fortinet's views on AI's impact on software, specifically cybersecurity, and whether security augments AI or vice versa?

Ken Xie acknowledged AI is changing the enterprise landscape and some software may need to adapt. He sees AI as an opportunity for cybersecurity, particularly in internal segmentation, data leakage prevention, and securing AI data centers. He noted Fortinet's long-term investment in edge AI solutions and immersive technology to leverage and secure AI.

“we do see AI as an opportunity in the cybersecurity space because also how to control some of the AI. We do see in the enterprise environment as kind of -- see some strong demand in whether internal segmentation to kind of control some of agentic AI or some other data leakage provision.”

asked by Shaul Eyal · answered by Ken Xie

How is Fortinet navigating the current memory price environment, and what is the impact of higher memory prices on 2026 guidance?

Ken Xie stated Fortinet prepared for supply chain issues with 6 months of inventory. They maintain healthy margins by adjusting prices based on component costs, leveraging ASIC technology for performance advantage. Christiane Ohlgart confirmed they are negotiating for components and have already raised prices (5-20% on specific products) where cost pressures exist, and will continue to do so. Ken added that service revenue turnaround and shift to higher-service offerings will also help margins.

“we've already raised some prices where we have some component cost pressures, and we will potentially continue to do so throughout the year depending on what the components prices do.”

asked by Saket Kalia · answered by Christiane Ohlgart

What was the billings duration in Q4, and how should investors think about the shape of services revenue for next year?

Christiane Ohlgart stated billings duration was around 2.5 years, slightly up due to enterprise deals. Ken Xie referred to Slide 20, indicating product revenue growth is a leading indicator for service revenue. Christiane expects service revenue growth to pick up in H2 2026, driven by accelerating product revenue growth in 2025.

“So from a billings duration perspective, because of all the enterprise deals, it was slightly up, it's around 2.5 years.”

asked by Saket Kalia · answered by Christiane Ohlgart

What is the revenue mix between Sovereign and Public SASE, and why is the services revenue recovery lagging historical patterns despite product revenue growth?

Ken Xie believes the Sovereign SASE market is potentially larger than Public SASE, with strong growth, especially in product sales. He estimates the mix is probably close to 50/50 currently but sees Sovereign SASE growing faster due to lack of competition and ASIC advantage. For services revenue, Ken reiterated that product revenue is a leading indicator, and the recent strong product growth will drive service revenue turnaround. Christiane clarified that service pricing is a percent of list price, so product price increases will positively impact services, but it takes longer to materialize.

“I believe probably pretty close to each other right now, but Sovereign SASE, we see more strong growth because we don't see any of our competitors offer this Sovereign SASE approach.”

asked by Robbie Owens · answered by Ken Xie

What is Fortinet seeing in the pipeline from 2020/2021 refresh cohorts, and are these cohorts more meaningful than last year's?

Ken Xie noted that while some 2020/2021 products are reaching end-of-service, Fortinet may offer extended service with higher fees instead of forcing new purchases. He emphasized that the primary driver for growth is new functions and market demand (e.g., SASE, ZTNE, internal segmentation, AI agent protection), not just refresh cycles. Christiane added that customers are driven by the need for additional security, leading to upgrades and adoption of solutions like FortiSASE.

“We may extend the end of service instead of try to force customers to buy the new product. We may give them actual extended service, but we do charge more service fee, both hardware fee and also the maintenance software fee.”

asked by Gabriela Borges · answered by Ken Xie

How is Fortinet driving strong growth in both SASE and product refresh without cannibalization, especially for branch locations?

Ken Xie stated that SASE complements and adds business opportunities, rather than cannibalizing network security, especially for Fortinet. He highlighted Fortinet's unique 3-in-1 solution (networking, network security, SASE on one FortiOS/FortiGate box) for branch offices, which competitors don't offer. He sees SASE expanding the market and enabling additional services, with physical devices still needed at the branch.

“In the branch office, you still need a physical device. That's the advantage we have. We have like we call 3-in-1. You look at the networking device, network security device and SASE device into one solution, one FortiOS, one FortiGate box in the branch office.”

asked by Fatima Boolani · answered by Ken Xie

Given peers' accelerated M&A pace, what is Fortinet's M&A philosophy for 2026, and are tuck-in deals needed?

Ken Xie stated Fortinet prioritizes internal innovation but is open to M&A, especially in secure operations. He emphasized discipline, maintaining Rule of 45, healthy margins, and planning integration before acquisition. He noted the market is more reasonable now, creating more opportunities, but they focus on acquiring technology/talent rather than market share.

“But we do have the discipline, which we maintained in the last 25 years, kind of tend to acquire the technology or some talent instead of try to buy some market or customer base.”

asked by Patrick Colville · answered by Ken Xie