Fortinet plans to pivot its focus toward secure access service edge (SASE) and security operations (SecOps) after reporting a weaker-than-expected revenue outlook during its Q3 2023 earnings call.

“Billing and product revenue fell below our expectation due to a slowdown in secure networking growth, along with challenges in sales execution and marketing efficiency,” Fortinet Founder and CEO Ken Xie said during the earnings call. “In response to the slowdown in the secure networking market, we are shifting our marketing and sales team's focus toward faster-growing security operation and SASE markets over the next few quarters.”

Fortinet CFO Keith Jensen noted a shift in research and development (R&D) and go-to-market investments to align with the new SASE and SecOps focus.

The vendor plans to continue to integrate its SASE features into FortiOS, expand its SecOps capabilities with artificial intelligence (AI) technology and finalize co-development agreements with existing large enterprise customers to accelerate the enhancement of its integrated SASE solution. This is coupled with certifying 5,500 Fortinet sales personnel in SecOps solutions after their SASE accreditation, according to Jensen.

SASE accounts for 20% of Fortinet’s business

Jensen also noted SASE and SecOps account for 20% and 10% of Fortinet’s business respectively, and expects mid- to high-teen growth annually.

“In a seven-figure upsell win an existing financial services customer initiated their single-vendor SASE solution for 50,000 users. Fortinet was able to displace another incumbent as the customer continued their consolidation journey with us, supplementing their earlier SecOps, cloud and network security purchases,” Jensen said.

On the other hand, the vendor predicted its network security business, which currently accounts for 70% of the company's total business, would see slower growth after two years of very robust growth.

When asked about the potential of SASE to cannibalize the firewall market, Xie said, the two are different business models.

“SASE is more the service opex compared to the networking dip capex. During the slow economy environment, customers definitely move towards service-based opex,” he said, adding some service providers have been slower than expected to adopt SASE and Fortinet has changed some of its strategy to be more aggressive.

Fortinet’s competitive edge in SASE

Xie touted Fortinet as “ahead at competing” in the crowded SASE market, benefiting from its integrated approach and better cost return on investment (ROI).

“We anticipate that success in the SASE market will first come from upselling SASE service to our installed base of tens of thousands of AT1 [additional tier one] customers. And from attracting new customers looking to leverage a single-vendor integrated SASE service solution,” he said.

“Our industry leadership in both firewall and SD-WAN — the two largest components of SASE — provides us with a significant competitive advantage,” he added.

Jensen also noted that Fortinet has done “several hundred” SASE deals in the past two quarters, and nearly half of the SASE customers are in the small and midsize business (SMB) space.

Additionally, Xie and Jensen both highlighted the partnership with Google Cloud expanded Fortinet’s SASE points-of-presence (PoPs) to 100 cloud locations, which include over 30 of Fortinet’s data centers and PoPs.

Fortinet’s disappointing revenue forecast

Fortinet reported total revenue of $1.33 billion for the third quarter of fiscal 2023, up 16.1% year over year, but product revenue for the quarter was $465.9 million, down 0.6%.

In addition, the company expects fourth-quarter revenue to be in the range of $1.38 billion to $1.44 billion, below analyst expectations of $1.50 billion.

Xie pointed out they anticipate limited near-term growth in the secure networking market.

“We expect top-line growth to be modest for the next few quarters due to challenging networking comparison and our business transformation realignment towards security operation and SASE,” he said.

“We anticipate growth return to double digits by the second half of 2024. We remain committed to generating a healthy operating margin of 25% or greater in 2024 and 2025,” he added.