Business information

OT activity will be greater than SD-WAN

Increased Interest from Fortinet’s Industrial Customers Drives Rapid OT Growth

Michael Novinson (Michael Novinson) •
May 4, 2022

Fortinet CEO Ken Xie (Image: Fortinet)

Fortinet’s operational technology business will outperform its SD-WAN practice due to the high threat environment and increased interest from industrial customers, CEO Ken Xie said.

See also: On demand | Machine Learning Done Right: Secure Application Infrastructure with High-Efficiency Alerts


The Sunnyvale, Calif.-based platform security provider saw OT bookings increase 76% in the quarter ended March 30, outpacing both SD-WAN bookings growth of 54% and an increase overall bookings 50%. Xie says OT now accounts for almost 10% of Fortinet’s business, as ransomware attacks and state threats against manufacturing facilities continue unabated.


“We definitely see OT as a bigger market in the future, probably bigger than SD-WAN,” Xie told investors on Wednesday. “The growth is very, very strong. We see a lot of potential, and we have also invested a lot in this area to meet the demand.”


Despite its potential, Fortinet’s OT practice today is considerably smaller than its SD-WAN business, which has been a company priority for years. SD-WAN accounted for 16% of Fortinet’s total billing in the quarter ended Dec. 31, while OT accounted for just 8% of total billing during the same period. Last summer, Fortinet had the second-largest SD-WAN market share in the world, behind Cisco.


Fortinet’s OT success coincides with growing demand from manufacturers, which CFO Keith Jensen says is the only vertical that continues to stand out for the company. Jansen says the company has seen a three- to five-point shift in its business from long-standing areas of strength like government and financial services to non-traditional verticals like manufacturing, and that trend has continued in the first trimester (see: Fortinet Threat Report: Sophistication, Speed, Diversity).


“Manufacturing strength really speaks to the threat environment, ransomware, OT and things of that nature,” says Jensen. “Manufacturing is desperately trying to break into the top five of our verticals and it’s getting closer every quarter.”


Fortinet’s two largest verticals in the quarter ended Dec. 31 were government and financial services, which accounted for 16% and 14% of billings, respectively, during that period.


Manufacturers have increasingly found themselves in the crosshairs of threat actors, with vertical financial services replacing the most attacked sector in 2021, according to IBM Security X-Force Threat Intelligence Index 2022. Of the attacks IBM X-Force remediated last year, 23.2% were against manufacturers.


Similarly, IBM Security found that 61% of OT breaches last year occurred in the manufacturing industry. According to IBM Security, ransomware accounted for 36% of attacks against OT-connected organizations and 23% of attacks against manufacturing organizations.


Land more big companies


Fortinet has managed to move upmarket in recent years, Jensen says, with high-end enterprise firewalls accounting for 37.8% of sales in the last quarter, up from just 31.7% a year earlier. In its most recent quarter, Jensen says Fortinet recorded Global 2000 reservations growth of 60% and large enterprise reservations growth of 65%, outpacing reservations growth for the company as a whole.


“There’s an opportunity for us in larger companies where we sometimes haven’t been seen as the incumbent,” Jensen says. “If you look at our progress over the years in the corporate sector and particularly in the United States – which may still have a bit more to do – we are very, very happy with that.”


Just three or four years ago, a single Fortinet representative in the United States was responsible for 65 customer accounts, which Jensen said was not in line with large enterprise expectations. Fortinet pledged at the time to improve that ratio, and Jensen says the company now has one rep for every 13 or 14 accounts in the United States.


“I don’t think it’s a coincidence that you see success in big business or major appliances given the level of investment we’ve been able to make in that segment of the market,” Jensen said.


Growing product demand drives sales growth















Category Q1 2022 Q1 2021 % Switch
Total revenue $954.8M $710.3M 34.4%
Service revenue $583.8M $469.6 million 24.3%
Product revenue $371 million $240.7M 54.1%
Americas revenue $382.6 million $290.9 million 31.5%
EMEA revenue $346 million $275.7 million 25.5%
APAC turnover $226.2M $143.7M 57.4%
Net revenue $138.4M $107.2M 29.1%
Earnings per share $0.84 $0.64 31.3%
Non-GAAP net income $155.1M $135.6M 14.4%
Non-GAAP earnings per share $0.94 $0.81 16%

Source: Fortinet


Fortinet’s revenue of $954.8 million in the quarter ended March 31 smashed Seeking Alpha’s sales estimate of $886.45 million. And the company’s non-GAAP earnings of $0.94 per share wiped out Seeking Alpha’s non-GAAP estimate of $0.80 per share.


Shares of the company rose $17.63 – 6.13% – to $305 per share on Wednesday after hours trading. This is the highest Fortinet stock since April 28. The Americas accounted for 40.1% of Fortinet’s revenue in the first quarter, while Europe, the Middle East and Africa, or EMEA, generated 36.2% of revenue and Asia-Pacific, or APAC, was responsible for the remaining 23.7% of revenue.


For the quarter ending June 30, Fortinet expects non-GAAP net income of $1.05 to $1.10 per share on revenue of between $1.005 billion and $1.035 billion. Analysts had expected non-GAAP net income of $1.15 per share on sales of $1.01 billion.