Fortinet, Inc Q4 2025 Earnings Call Transcript

Fortinet, Inc (NASDAQ: FTNT) Q4 2025 Earnings Call dated Feb. 05, 2026

Presentation

Operator

Hello and welcome to Fortinet’s fourth quarter 2025 earnings conference call. At this time all participants are in a listen only mode. After the speaker’s presentation we will conduct a question and answer session. Please be advised that this call is being recorded. I would now like to hand the call over to Anthony Luscri, Vice President of Investor Relations. Please go ahead.

Anthony Luscri — Vice President, Investor Relations

Thank you. Good afternoon and thank you for joining us on today’s conference call to discuss Fortinet’s fourth quarter and full year 2025 financial results. Joining me on today’s call are Ken Z. Fortinet’s Founder, Chairman and CEO, Christiana Olgaard, our CFO and John Whittle, our coo. Ken will begin our call today by providing a high level perspective on our business. Christiana will then review our financial results for the fourth quarter and the full year of 2025 before providing guidance for the first quarter and full year 2026. We will then open the call for questions during the Q and A session.

We will ask you to please limit yourself to one question and one follow up question to allow others to participate. Before we begin, I’d like to remind everyone that on today’s call we will be making forward looking statements and these forward looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular the risk factors in our Most recent Form 10K and Form 10Q for more. All forward looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation and specifically disclaim any obligation to update forward looking statements.

Also, all references to financial metrics that we make on today’s call are non GAAP unless stated otherwise. Our GAAP results and GAAP to non GAAP reconciliations are located in our earnings press release and in the presentation that accompany today’s remarks, both of which are posted on our investor Relations website. As a reminder, this is a live call that will be available via replay via our webcast on the investor Relations website. The prepared remarks will also be posted on the quarterly earnings section of our investor Relations website following today’s call. Lastly, all references to growth are on a year over year basis unless noted otherwise.

I’ll now turn over the call to Ken.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Thank you Anthony and thank you to everyone for joining our call. We are very pleased with our excellent fourth quarter growth driven by broad based demand across our platform. Our speeding increase 18% and revenue growth 15% driven by partner revenue growth of 20% operation margin was strong and 37% reflecting our continued focus on balancing growth or profitability. Secure networking building grow 13% outperforming the overall secure networking market as we continue to gain market share, Fortinet remained the number one firewall leader with 55% unit market share and the highest product revenue among our cyber security peers.

Fortinet has led the convergence of networking and security for over 25 years and secure networking is expected to surpass the traditional networking by the end of this year. Our forward leadership is driven by 40 OS which unify the networking and security and our 40 ASIC technology deliver 5 to 10 expected performance than competitors while lowering the total cost of ownership and energy consumption which provide a large advantage and securing AI data center. We will introduce the 40OS 8.0 and the Fortinet’s annual Customer and Partner conference Accelerate in March featuring significant new capability in security and networking, especially in AI security such as Digestic AI Security in the Enterprise plus a new bundled SD WAN and SASE service.

We also recently partnered with Nvidia to leverage their Bluefield 3 DPU to secure AI infrastructure. Unified SASE building grow 40% representing 27% of a total building, supporting our belief that Fortinet is the fastest growing SASE leader at scale. Our momentum is powered by three key advantages. First, Fortinet uniquely integrate Nigerian firewall, ST1 and SASE on a single OS4 DOS running on premise all in the cloud allowing customer to expand SASE in minutes and driven upsell across a large customer base. Second, we support in both solvent SASE and public sase. Solvent SASE enable enterprise and service provider to deploy SASE in their own data center to meet the data privacy, sovereignty and compliance requirement.

We are seeing strong demand in sovereign SASE and none of our major SASE competitors offer sovereign SASE solution making Fortinet’s total unified SASE addressable market significantly greater than our peers. Third, our owned and long term invested global cloud infrastructure for the cloud delivers high performance and security and roughly 1/3 the total cost ownership of our peers. These differentiators position Fortinet as a leader in the 2025 Ghana Magic quadrant for SASE platform as we continue to be the leader in SD WAN and believe we will be the number one unified SASE within the next few years.

AI driven secure our building grow 6% in the fourth quarter and 22% for the full year. While AI was up 21%, our strong performance was driven by more than 20 AI power solutions as customers consolidate multiple security vendors onto Fortnite’s platform. In addition, Fortnite’s leadership in security also extend to operational technology and a cyber physical system offering enhanced visibility, robust threat protection and secure connectivity. Demand for OT solution is driven significant growth with building up more than 25%. Finally, we reaffirmed the midterm target we shared at our analyst day, reinforcing our commitment to continue grow faster than the overall market including delivering building and revenue CAGR above the market growth of 12% and achieving the rule of 45.

I would like to thank our employees, customers, partners and suppliers worldwide for their continuous support and hard work. I will now turn the call over to Cristiano.

Christiane Ohlgart — Chief Financial Officer

Thank you Ken and good afternoon everyone. As Ken mentioned, we are very pleased with our strong fourth quarter performance exceeding the high end of guidance across billings, total revenue and operating margins. This outperformance reflects solid global execution and broad based demand for our solutions. With product revenue growth accelerating in the second half of the year, we are well positioned to deliver durable long term growth as a leader in large and rapidly expanding cybersecurity markets including secure networking, unified sase and security operations. This opportunity is supported by strong secular tailwinds such as vendor consolidation, the convergence of security and networking, ongoing technology upgrades and the expansion of enterprise attack surfaces across Cloud, OT and AI.

Our strong network security foundation drives adoption of SD, WAN, SASE and SecOps while creating significant opportunities to upsell integrated solutions across enterprise customers. Building on these market dynamics, our leadership and secure networking combined with our unified 4DOS operating system and broad platform enables customers to deploy security anywhere across private, public and hybrid multi cloud environments and in any form factor including Hardware, software and SaaS. As a result, our platform approach drives strong customer expansion, increases wallet share and supports growth across both existing and new markets. In addition, we benefit from durable competitive advantages through our proprietary ASIC technology and single integrated operating system which delivers superior performance, lower total cost of ownership and meaningful differentiation versus peers.

At the same time, continued investment in R and D across custom silicon OS convergence, AI driven security, quantum readiness and Fortinet owned cloud infrastructure supports rapid innovation and organic growth. Finally, our highly diversified business across geographies, customer segments and industry verticals reduces volatility and enhances resilience across economic cycles. Complementing this diversification, we operate a strong and balanced model with a ruler 45 plus profile, robust recurring revenues, strong free cash flow generation, a solid balance sheet and a disciplined shareholder focused capital allocation strategy. This balanced model supports our confidence in our 2026 guidance and continued long term shareholder value creation.

Now moving to an overview of our strong fourth quarter results total billings grew by 18% to $2.37 billion driven by strong growth in unified SASE OT security and success in large Enterprises. In the US and Europe, unified SASE billings grew 40% driven by growth in cloud security solutions. Furthermore, SASE adoption momentum has remained strong as 16% of our large enterprise customers have purchased Fortiss, an increase of over 50% highlighting our continued expansion of Fortissas in our customer base. Operational technology use cases continue to contribute strong growth to our success with billings growth of over 25% with broad based demand for both our hardware and software solutions and our continued momentum in large enterprise drove growth in the fourth quarter as the number of deals greater than 1 million increased by over 30% while the total deal value grew by over 40%.

The US and Europe were the largest contributors to growth in $1 million plus deals, each delivering more than 30% growth. In addition, we continue to expand our customer base. 7,200 new organizations selected our unified 40 OS platform, reinforcing our strong position across all market segments. With regards to ARR, unified SAASI increased by 11% to 1.28 billion which included an increase of over 90% for 40 SAASI ARR while SECOPS ARR increased by 21% to 491 million. Total revenue grew 15% to 1.91 billion. Product revenue increased by over 20% to 691 million reflecting broad based growth driven by strong performance across our product portfolio as we continue to gain market share.

Both hardware and software grew 20% supported by technology upgrades, upselling and expansion into new use cases. Service revenue grew 12% to $1.21 billion reflecting lower product revenue in 2024 while service billings growth was strong at 18% in Q4. As a reminder, we view product revenue growth as a leading indicator of future service revenue growth as shown on slide 20 of the earnings presentation. Now I’d like to highlight some key deals that demonstrated our market leadership and customer expansion. In the competitive seven figure Upsell deal, a large consumer services company, an existing 41 SD WAN customer, selected Fortisasi to secure more than 10,000 users as part of its next generation access and security transformation.

The win was driven by our single OS approach that tightly integrates sd, WAN and sase, enabling rapid expansion to SASE and delivering strong performance at a meaningfully lower total cost of ownership. The customer chose Fortinet for our unified 40s operating system which reduces complexity by enabling a single consistent security policy across Fortisi and Fortigate devices while leveraging our globally distributed POPs. By integrating our POPs into their existing SD WAN fabric, the customer has simplified centralized policy management and enabled secure private access at scale, which highlights our platform model. Next, a leading global data center provider supporting AI and cloud workloads signed an eight figure deal with Fortinet to support its rapid global expansion.

The customer selected Fortinet for a predictable scalable investment model that aligns security growth with with its accelerated data center built out. As the company standardizes on our 40 gates, 40 switches and 40 APs, our solutions will streamline operations across IT and OT environments including critical power, cooling and physical security systems. This strategic partnership enables the customer to scale securely and consistently, supporting its long term global growth strategy. In another key Win, a major utility company, expanded its partnership with us through a high seven figure agreement to secure its operational technology environment. The deal includes a comprehensive set of solutions covering network segmentation, identity and access management and zero day threat detection across the utility’s advanced distribution management system along with the adoption of 4Dai.

This competitive win was driven by our ability to automate critical security operations, our proven expertise in protecting critical national infrastructure and a compelling price for performance advantage. Lastly, in a competitive displacement win, the Fortune 100 company signed an eight figure multi year agreement for unified SASE selecting our virtual firewall solution to secure approximately 1,800 store locations. The customer chose Fortigate VM through our Fortiflex Points Based Consumption program which supports flexible hybrid firewall deployments and a broad set of security solutions. Fortinet was selected after a highly competitive evaluation due to the flexibility of the program and our ability to meet demanding technical requirements at scale, enabling the customer to consolidate security on a single architecture while gaining deployment flexibility, centralized management and long term cost efficiency to support future growth.

Turning to margins and cash flow, total gross margin of 80.3% was better than expected, which is especially impressive given the strong product revenue growth and related mix shift. Operating margin of 37.3% exceeded the high end of the guidance mainly due to stronger than expected revenue growth and cost management. Free cash flow was very strong at 577 million and adjusted. Free cash flow was 589 million up 130 million and represented a margin of 31%. We repurchased approximately 730,000 shares of common stock for 57 million during the fourth quarter and an additional 4.6 million shares for 356 million quarter to date.

In January, our Board of directors approved a 1 billion increase in the authorized stock repurchase amount and the remaining share repurchase authorization as of today Is is approximately 1.4 billion. Turning to our full year 2025 results where we once again exceeded the rule of 45 for the sixth consecutive year, billings grew 16% to 7.55 billion. Our faster growing pillars of Unified, SASE and SecOps grew a combined 24% representing a two point mix shift year over year and six points over the past two years. The two pillars now make up 36% of total billings, reflecting the value of our integrated platform approach and the convergence of security and networking and success in cross selling our other solutions.

Total revenue grew 14% to 6.8 billion, driven by strong product revenue growth of 16%. Service revenue grew 13% to $4.58 billion representing 67% of total revenue. Gross margin of 81.3% was flat despite a shift to product revenue and investments in the build out of our data center infrastructure. Operating margin increased 50 basis points to a record of 35.5% resulting in operating income of 2.41 billion which is up 16%. Our GAAP operating margin of 30.7% continues to be one of the highest in the industry. Earnings per share increased 16% to $2.76. Free cash flow was a record of 2.21 billion representing a margin of 33%, while adjusted free cash flow was 2.5 billion representing a margin of 37%.

Our adjusted free cash flow CAGR of greater than 20% over the past five years demonstrates the strength of our business model. Now moving on to guidance As a reminder, our first quarter and full year outlooks, which are summarized on slides 24 and 25, are subject to the disclaimers regarding forward looking information that Anthony provided at the beginning of the call. For the first quarter we expect billings in the range of 1.77 billion to 1.87 billion, which at the midpoint represents growth of 14%. Revenue in the range of 1.7 billion to 1.76 billion, which at the midpoint represented growth of 12% non GAAP gross margin of 80 to 81% non GAAP operating rating margin of 30 to 32% non GAAP earnings per share of $0.59 to $0.63, which assumes a share count between 746 and 750 million infrastructure investments of 80 to 120 million, a non GAAP tax rate of 18% cash taxes of 45 to 50 million for the full year.

We expect to achieve the rule of 45 for the seventh consecutive year and expect billings in the range of 8.4 billion to 8.6 billion, which at the midpoint represents growth of 13% revenue in the range of 7.5 billion to 7.7 billion, which at the midpoint Represents growth of 12% service revenue in the range of 5.05 billion to 5.15 billion, which at the midpoint represents growth of 11%. We expect service revenue growth to pick up in the second half of 2026, driven by accelerating product revenue growth in 2025 as a key leading indicator Non GAAP Gross margin of 79 to 81% Non GAAP operating margin of 33 to 36% Non GAAP earnings per share of $2.94 to $3.00, which assumes a share count of between 747 and 753 million Infrastructure investments of 350 to 450 million Non GAAP tax rate of 18% Cash taxes of 350 million to 400 million before we open it up for Q and A, I just wanted to share a few modeling considerations.

As a reminder, the majority of our service revenue is recognized relatively on a daily basis and the first quarter this year has 2 fewer days than Q4. From a margin perspective, our first quarter operating margin guidance reflects the timing of several marketing events. Additionally, the recent weakness of the US dollar may create a modest headwind in the first quarter and finally, we plan to repay the first tranche in the amount of 500 million of our senior debt at maturity at the end of first quarter. This, alongside lower market interest rates will reduce net interest income for the year as we look to 2026 and beyond.

We are confident in our growth strategy driven by significant secular tailwinds such as rising cybersecurity spend, the convergence of security and networking, vendor consolidation, and the increasing need to secure AI and OT environments. We believe we can sustain product revenue growth of 10 to 15% over the midterm on average and reaffirm the midterm target shared at our analyst day including delivering billings and revenue CAGR above 12% and achieving the rule of 45, reinforcing our commitment to continued growth beyond that of the overall market. Our leadership in innovation and price for performance enables the lower total cost of ownership and across secure networking, unified SASE and SecOps positioning us to outperform the overall market.

We are well positioned to deliver durable long term growth considering our highly diversified, cash generative and profitable business. I will now hand the call back over to Anthony to begin the Q and A session.

Anthony Luscri — Vice President, Investor Relations

Thank you Christiana. As a reminder, during the Q and A session we ask that you please limit yourself to one question and one follow up question to allow others to participate. Operator. Please open the line for questions.

Question & Answers

Operator

Thank you. If you would like to ask a question, please click on the raise hand button at the bottom of your screen. When it is your turn, you will hear your name called and receive a message on your screen notifying you that you may unmute yourself. We will allow a moment for the queue to form. Our first question comes from Shal Ayala Shaw. Your line is open, you may unmute and ask your question.

Shaul Eyal

Thank you so much. Good afternoon everybody. Congrats. Ken. I’m interested in what drove the strength or the change that you’ve seen during the quarter. Specifically the unified SaaS billings and the strong guide. What gives you confidence into 2026?

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah, that’s a great question, Xiao. Thank you. Actually you can see the unified SASE grow 40%. That’s where we see probably the fastest growing unified SASE vendor and scale because the three unique advantages I mentioned. First actually the sovereign sase we see very strong growth. I believe the sovereign SASI market probably even bigger than the current public sase. That’s all the other vendor doing right now. But we don’t see any of them try to get in the sovereign SASE or have the function to support in sovereign sase which we kind of designed the SASE in the beginning try to support our service provider and all these things which is all kind of sovereign SASE approach.

That’s have a huge growth and sovereign sase usually buy the product first, then deploy in the customer or service provider data center and then we’ll keep in supporting with additional service. So that’s a huge market opportunity. We believe we are the only leader in the space for the server and sase. Second, like we have three functions into single os, network security, SD WAN and the sase that’s actually give us a huge advantage level or huge customer base and all our competitors have this advantage and that’s making us grow quickly. Both ourselves and the partner see the huge advantage and the setting rampant wobble quickly and then also long term because our investment in the infrastructure.

So we do see we have a cost advantage. So our cost is about 1/3 compared some other competitors. Right. So that’s also we can pass all this kind of cost saving to customer and play the long term game. That’s we see strong growth of a unified SaaS maybe Christiana and at some hundred points.

Christiane Ohlgart — Chief Financial Officer

Yeah. So I think we saw really good traction on our execution in Q4 and it was very broad Based. So as you heard from me, I mean we were great in enterprise, we executed well on the OT side. We had some successes in rc. AI was a big driver. So that gives us significant confidence for 2026 that these growth drivers are going to continue because the demand is definitely there.

John Whittle — Chief Operating Officer

I would just say, you know, obviously the cybersecurity market is growing really nicely as Ken highlighted. We have a lot of competitive advantages where we feel like we can grow faster than the market and faster than each of the three pillars that we focus on as we did throughout 2025. And we see a lot of different growth drivers amongst the three pillars. The OT momentum we see opportunities with AI and with Quantum. And when you look at our business, it’s really diversified in a number of ways, geographically based on customer segments and also industry verticals.

And then if you look at our solution sets as well is diversified amongst the three pillars that we focus on. And when we focus, we have a track record of doing really, really well. If you look at what we did in SD Wan, we focused and did really, really well starting around 2018 or so and really grew that business. And we’re really focused on unified SaaS in these other areas as well and expect to do well just like we’ve done in the past.

Shaul Eyal

Got it. Thanks for this color. Maybe just a brief follow up. You know Ken or team, what are your views on AI eating software specifically as it relates to cybersecurity? We have seen, you know, we’re sitting here in front of the screens, probably everyone, everyone else, my peers here seeing, you know, software demise. Cyber has been holding a little better. But I think, you know, today, the past few days, it hasn’t been fun at all. Just curious as to your views, whether security actually augments AI or maybe it’s the other way around.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

AI definitely changing the especially enterprise landscape. Some software probably also need to be changing to see whether they take advantage of the AI or they kind of falling behind which let AI to eat some of the software. But on the other side we do see AI as opportunity in the cybersecurity space because also how to control some of the AI we do see in the enterprise environment is a kind of see some strong demand in whether internal segmentation to kind of control some of AI or some other data leakage prevention. So on the other side, the AI data center also we see some huge opportunity there.

I think we will present more detail in the next month’s Accelerate. If you see some of the presentation I did in the last few Accelerate like six Years ago. I do see the edge will either cloud and mobile. So that’s where I think sometimes some of this like edge AI solution and the immersive technology with AI I think it would be kind of a changing some of the traditional weather software infrastructure which we keeping invest we keeping kind of a preparedness in the last five to 10 years. So we see this as an opportunity to both leverage AI and also helping enterprise to secure AI.

Shaul Eyal

Thank you so much.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Thank you.

Operator

Our next question comes from Saket Kalia at Barclays Saket, your line is open. You may unmute yourself and ask your question.

Saket Kalia

Okay, great. Hey guys, thanks for taking my questions here. Ken, maybe maybe first for you, can you just talk a little bit about how you’re navigating the current environment in memory and maybe as part of that. Christiana, can you just talk about how you’re thinking about the impact of higher memory prices as part of your guide in 2026?

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

That’s a great question. Actually we prepare for this kind of supply supply chain since you can see five years ago when there’s a supply chain issue during the COVID we’re doing quite a while because we do have inventory on average about six months which try to buffer during this kind of time. And also we keep mentioned during the analyst day we will maintain a healthy margin. So we’re adjust by some of the price based on our margin. And because even we are adjusting price, we still have a huge advantage like leverage our technology. Whether The ASIC gave a 5 to 10x better performance for the same function, same cost and the same time.

The OS offer much more function than other competitors. So that even with a little bit recent price to maintain our margin, we still feel we are over competitive compare any other competitors. So we view this just like 5 years ago as opportunity to gain a market share. So that’s where we well prepared with good inventory and also managed operation manufactured directly with our own operations center worldwide and also with the technology we feel we even little bit price raised, we still very competitive will not reduce our growth or market share. You want to add?

Christiane Ohlgart — Chief Financial Officer

Yeah. As Ken mentioned, we are planning to maintain our kind of profitability and gross margins on our products in two ways. Right. One is by negotiating and making sure we get the components early. But also 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.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah, the other part can help in the margin is we starting to see the service revenue will be turned around probably during 2026 this year and also when we shift in more like sales into like whether Unified SASE or the AirDrive Secure up which has the most service, we feel the margin also will be kind of improving from that angle which has the most service. So that’s also helping. But there’s other things we also kind of measure whether the currency issue some other but we kind of we feel we are prepared and with all the diversification we have, whether by vertical by Geo, we feel we kind of maintain the margin and keeping the rule of 45.

Saket Kalia

Got it, got it. Christiana, maybe for my follow up for you, it was a great billings result in the quarter and good to see the guide. Can you just and apologies if I missed it, but can you just remind us what billings duration was this quarter? And to Ken’s point, just as we think about that driving services revenue for next year, is there a way that you just have us think about the shape of services revenue for next year through the year.

Christiane Ohlgart — Chief Financial Officer

So from a billing duration perspective because of all the enterprise deals it was slightly up, it’s around two and a half years and so yeah, not in not too much different than it is Normally in a Q4.

Saket Kalia

Got it. Very helpful, thanks.

Operator

Our next question comes from Rob Owens at Piper Sandler. Rob, excuse me, your line is open. You may unmute and ask your question.

Rob Owens

Great. Thank you for taking my question. I know you highlighted the sovereign versus Public SASE as one of the strikes. Curious if you can give us a sense of what your actual revenue mix looks like. Sovereign versus public number one and then number two to kind of follow up on sockets. I think it was his third question, but I’m not going to call him out. When you look at the shape of services revenue and the recovery there, and I know you talked about the second half being stronger, but it doesn’t seem to track with where you’ve been historically in terms of a recovery given what you saw with product revenue this year.

So is there something unique in 2026 or something unique going on that’s causing that to lag just a little bit more than maybe you’ve seen historically? Thanks.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

For the service or product revenue as you can refer to the page 20 on the presentation we gave out the last 16 years since IPO, the growth between the service revenue and the product revenue. You can see that the since changing the product revenue lead indicator of a service revenue. So we do believe this year with the last few quarters with product revenue in the last quarter grow stronger. That’s what Helping drive the service revenue turnaround starting grow faster. On the first question. Sorry, sorry, what’s the first question?

Rob Owens

Sovereign versus public SASE mix.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah, I believe the sovereign SASE market is probably even bigger than the current public SASE market, but kind of approach is different. The sovereign sassy market, the service provide enterprise tend to buy the product first which also we see the product growth very strong in Q4 and also believe we’re helping drive this year product revenue growth with sovereign sase. We have not compared the sovereign and also the public yet, but I believe probably pretty close to each other right now. But solving sase, we see more strong growth because we don’t see any of a competitor offer this sovereign SASE approach.

And also with the product with the ASIC acceleration is a huge advantage for us. So that’s. I do believe we have probably doubled the total addressable market in the SASE market with the sovereign SASE supporting the service provider enterprise with their own kind of SASE approach.

Rob Owens

All right, thank you.

Operator

Our next question comes from.

Christiane Ohlgart — Chief Financial Officer

Oh, go ahead.

Operator

Excuse me. Our next question comes from Gabriela Borges at Goldman Sachs. Gabriella, your line is open. You may unmute and ask your question.

Gabriela Borges

Hey, good afternoon. Thank you. I know last year we shifted the conversation away from refresh tight to end of support and more towards refresh tight to technology upgrade cycles. Tell us a little bit Ken and Christiane on what you’re seeing in the pipeline from the 2020 and 2021 refresh cohorts, their willingness to engage across the platform and do those cohorts look more meaningful or notable than the cohort that you had refresh last year? Thank you.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah, I think there’s two things. One is really we mentioned on Earstate is an end of service which we say there’s a 11 part, 1112 part will be end of this year, may end up service but actually doing some communication with the customers. Some of them still want to support in beyond end of a service. So I think we kind of found some solution. Probably win win. We may extend end of a service instead of trying to force customer to buy the new product. We may give them extra extended service. But we do charge more service fee, both hardware may fee and also the maintenance software fee.

So that’s a win win situation. And then also like I said, that’s another major drive not of this growth because the growth more come from the new function come from all these kind of like new demand in the market. The second refresh is that’s where in the past probably the Average hardware product, whether network security network can even server. Probably after five to six years they may have to get a new one. So we do see five years ago during the supply chain Covid time there’s a strong growth of product revenue. You can see on the page 2021, 22 there’s a pretty strong product revenue growth like over 40%.

Some of that one probably will help in the next couple years. But like I said, the better driver will be new function like how to supporting the SASE in the ZTN0 Trust Network environment. How to go internal segmentation, supporting enterprise to convert from the traditional networking to the network security. And like helping protect the data level. Whether the data leakage or some kind of AI agent that I feel is the one to drive the strong growth. Just like the strong growth come from the unified SASE it’s 40% in Q4. I feel customer definitely more interested in if you have a better function and also kind of they can see the future of a long term advantage.

That’s what more drive a customer to buy. Otherwise they may replace the product with some other different vendor. So that I see is more important we more focus on how the strong function, how the future kind of advantage we have and also how to leverage a long term investment we have whether in the AI, in the quantum, in the infrastructure that gives the customer confidence also keeping or partner with the fortinet.

Gabriela Borges

Thank you for the detail please Christiane.

Christiane Ohlgart — Chief Financial Officer

Yeah, I would confirm what Ken said based on the customer conversations we are having. The driver is that they need additional security and so as they look at fortisas or similar, they upgrade their underlying technology at the edge as well.

Gabriela Borges

Yeah, that makes sense. Thank you, Ken. My follow up is on how to think about the second derivative of AI compute Demand. So more on the inference side, how does that impact what you see from a network security standpoint and a network traffic standpoint in particular?

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

That’s everybody still kind of because the space changes so quick with AI we’re definitely working closely with our customer, with our engineer, trying to to try to develop all this technology, try to try to do better protection. But in general I think we kind of are molding to whether like the edge computing and also how the broad infrastructure protection instead of too much weight on the uncertain cloud of certain software. That’s where we kind of a lot of long term investment we have whether in ASIC chip, in all this kind of system level, in the infrastructure level and also in a supporting I feel is a kind of more broad approach where we Will be helping better instead of just too much focus in one single, single area.

Gabriela Borges

Thank you for the detail.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Thank you.

Operator

Our next question comes from Fatima Bulani at City. Fatima, your line is open. You may unmute and ask your question.

Fatima Boolani

Oh, good afternoon. Thank you so much for taking my question. My first question is for you, Ken. The strength in unified SASE at 40% your product growth this quarter in excess of 20%. That paints a really interesting picture. That maybe is in contrast to some fears around SASE or Ford is SASE rather being maybe a force of cannibalization of the product refresh opportunity. And I know you alluded to sovereign SASE specifically, but I’d be curious to get your perspective on how you are independently driving strong growth in SASE and independently driving strong growth from a product refresh perspective that doesn’t seem to be, you know, affirming fears of cannibalization, especially for branch and branch location environments.

And then I have a focus follow up for Christiana, please.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

I have to say that’s the same SAS me cannibalize the sum of the network and security come from somehow competitor. I never think SASI will be kind of like all these network security. Even a branch I feel would be complement and also will be add on additional business opportunity. That’s what we do in both in the network and like traditional network security and also sd, WAN and SASE for many many years. So from our angle we do see SASE to offer additional business opportunity, additional product service both in the customer level, in a service provider level and also in some other like a branch approach.

And eventually may even try to supporting working remotely working from home of this kind of approach. And also will be leveraged both the infrastructure in the public cloud in the colo and also in own kind of infrastructure. So that’s where we see there’s a lot of different approach to SASE and the different customer different region may have a kind of different need. So that’s where we kind of in the very beginning when we developed SASE technology probably like six, seven years ago, we more believe the the solvent SASE service provider kind of SASE will be the future.

That’s where we kind of keeping investing in this area. But also like when we launch our own kind of sase maybe over two years ago, we also feel kind of working side by side with service part provide our own SASE and even some infrastructure also very very important. So that’s where we see the the SASE actually will be complement also will be additional business opportunity to Add beyond the traditional networking and network security in the branch office you still need a physical device. That’s the advantage we have. We have like we call three in one.

You do get a networking device, network security device and SASI device into one solution. 140 OS 14040 gig box in a branch office that’s probably not our competitor offer this kind of a solution and that’s we see a huge opportunity so we don’t see SASE will be replaced branch office and network security solution and you can see the union shipment even in the in the branch office solution alone in the retail growth very strong some are because of SASE but some also they try to buy deploy I believe the future they can enable whether the SASE, the SD1 some other additional security service they needed but they do need to have a device in the branch office.

They do need some kind of a edge solution to handle all the both security and networking.

Fatima Boolani

I really appreciate that detail. Thank you Ken. Christiana, I wanted to go back to some of your comments with respect to pricing actions in response to an earlier question and something you mentioned. The prepared remarks was hoping you could quantify what degree of pricing gross pricing increases you’ve been able to roll out in the base and to the extent there’s a net pricing yield associated with that and how that’s influencing your guidance and maybe to just to take that a step further. Is that one of the reasons why we’re maybe seeing a slower ramp in the services trajectory of the business? Because you are seeing a price action yield on the product which may not necessarily be translating to services.

I’d love for you to just explain that for all of us. Thank you very much.

Christiane Ohlgart — Chief Financial Officer

So the pricing actions are on specific products and of course dependent on the components that go into it. Overall I think it’s between 5 and 20% but that also positively impacts services because our service pricing is a percent of list price. But of course it’s going to take longer until that materializes in service revenue. Right. So for product you will see it in the next couple of quarters. For service revenue it’s going to take a bit.

Fatima Boolani

Thank you.

Operator

Our next question comes from Junaid Siddiqui at Truist. Junaid, your line is open. You may unmute and ask your question.

Junaid Siddiqui

Great. Thank you for taking my question. I just had a question on your software firewall business. As AI transformation across enterprises accelerate growth and cloud workloads, do you feel that your software firewall business, which has been growing at a nice rate, could inflect even further. And how do you think about that hardware software firewall mix going forward?

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

I think Q4 we see the software firewall and the hardware firewall grow almost the same pace about 20%. So the partnership with Nvidia, the Bluefield 3 DPU, that’s probably more leverage a software approach. And also we do working with some kind of some other service provider, cloud provider to offer some software. But I do believe we have also more advantage leverage our own kind of secure ASIC which kind of give a 5 to 10 times better performance compared to some software approach and with lower cost. And that’s probably. But I see so far it’s almost the same growth pace.

Christiane Ohlgart — Chief Financial Officer

And for most of our enterprise customers I would say they have hybrid models and so they buy our hardware but they also buy virtual firewalls.

Junaid Siddiqui

Great, thank you. Just a follow up as well. You know great to see the billings number but just wanted to ask about specifically billings for SecOps. It seems like it deceled from Q3. Could you maybe just unpack that in terms of what were some of the drivers there?

Christiane Ohlgart — Chief Financial Officer

Yeah, I don’t want to call it a driver. I would say if you look at the annual growth, billings growth for SecOps it’s very compelling. Our growth is compelling, revenue is compelling. So billings is always a little bit off of a more volatile number. And in Q4 we had a lot of success in secure Networking and Unified SASE. But our SecOps portfolio is solid and we continue to see interest and demand. And so I wouldn’t take this one quarter as a trend.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah, also the secure networking and unified SASE can be a leading indicator for some future secure because they tend to buy the third product first and then eventually will also handle the additional like operation service. I have to say because lot of ourselves and the partners see the universality demand so strong they probably shifting more focus in that and they can see that’s more easy win. But secure is a very secure office rather long tail. We have so many different part with AI. If you probably look at annual number will be more kind of addressable instead of some quarter quarterly number.

Junaid Siddiqui

Thank you.

Operator

Our next question comes from Patrick Colville at Scotiabank. Patrick, your line is open, you may unmute and ask your question.

Patrick Colville

Thank you so much for taking my question and nice end to 2025. Could I just get a clarification on the pricing comments because I thought that was interesting and Fortinet is a company that over the years has clearly demonstrated pricing power. You know we saw that most evidently in 2021, 2022. Good to see that lever being pulled again. Cristiana, did you say that expect pricing for appliances in 2026 to go up between 5 and 20% on average?

Christiane Ohlgart — Chief Financial Officer

It depends on the appliance, but that’s what we are targeting. Yes.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah. We can actually justify the price monthly. We usually give a distributor like a 30 day notification. So some of them already see we probably raise the price next month. But on the other side we do have a buffer. That’s where we feel we can, we can kind of react this kind of situation better than other competitors. And we also have a good like a global operation with own operations center with manage manufacture directly.

Patrick Colville

Okay. Okay. And I guess I just want to ask maybe just a kind of a question zooming out. I mean we’ve seen your peers really accelerate the pace of ma. You saw that at your kind of endpoint peer. You saw that at your firewall peer both for tuck ins and for larger deals. Fortinet hasn’t done that over the last few quarters. What’s your thinking in terms of M and A philosophy and whether like how we should think about that into 2026, whether the tucking deals are needed in certain areas. Thank you.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

I think like the technology we did, whether the 40 OS 40 ASIC and integrate all these functions together. Sometime probably using internal innovation will be better. But we do open for merger acquisition and also we do look in different opportunities especially in the secure operational area. But on the other side we have a discipline whether the rule of 45 or some healthy margin. And also we try try to plan the integration before the acquisition. I think with the multiple the market little bit more reasonable now. I think definitely there’s more opportunity. We’re looking at the merger acquisition but we do have the discipline which will maintain the last 25 years kind of tend to acquire the technology awesome talent instead of try to try to buy some market or customer base.

Patrick Colville

Thank you so much, Ken.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Thank you.

Operator

Our next question comes from Adam Borg at Stifle. Adam, your line is open. You may unmute and ask your question.

Adam Borg

Excellent. And thanks so much for taking the question. Maybe just thinking about your, your ASIC chips. I don’t want to front run anything from Accelerate, but you know we’ve been talking about the opportunity for ASIC chips this year and just remind us, you know what kind of opportunity fee there is when those chips come out. How long after an announcement do you typically see those being adopted by customers? Obviously it goes into test first and ultimately production. But any color there in Terms of that and the ability to drive, you know, innovation and additional attach going forward.

Thanks.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

We say the new ECG will come out this year but we tend to announce together with a product but also euro. The new ASIC chip also takes some time to build into the product. That’s where like the next month seller rate is more focused on the 40 OS first and the ASIC. We try not get excited too early put it this way. But definitely it’s a good technology. We’re improving the performance. We’ll add more function there. But we usually announce the product after we deliver instead of some competitor try to announce ahead of the time.

So that’s we want to keep in the same way same culture. Once we have the related product all we are very sure we can deliver to the customer partner. Then we announce it.

Adam Borg

That’s incredibly helpful and maybe just as a quick follow up as a clarifying question. When we talk about the refresh opportunity be it Covid or otherwise when those boxes typically come up and I’m sure the answer is it depends. But do you typically see like a one for one box refresh or they come by come back and buy more boxes. And I guess the follow up to that would be what is the kind of the sales motion about cross selling and upselling SASE and SecOps as part of those refreshes. Thanks so much.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

We do see there’s a more kind of whether we call attack service or there’s a more area you can deploy the network security and also the convergence also starting to kind of take more effect. So now that we see the a lot of network security deploy inside the company do the segmentation replacing some traditional network gear. Even our own kind of demand for 40 switch 40 AP which has a 40 link technology can link to 40 gate as more like a hardware agent. As a SASE also see pretty good growth. On the other side there’s like OT security.

There’s some others whether supporting work from home. Eventually the network security can expand into the consumer space. That also could be the next new opportunity. But I say if you look at this probably depend on the vertical also maybe depend on certain region how mature the networking network security is. I have to say by vertical like five years ago the first strong growth come from some retail. Right. So whether retail or some other online service. So that part we do see they heavily use in the box and then this kind of virtual three to one like networking network security and also the SASE kind of into the same box.

That’s we are probably the only One can solve that issue. So we do see that will be continued to will be continue the market for us basically on the other side there’s a lot of whether it’s in the data center with some other kind of bigger infrastructure that’s probably the new ASIC chip or some other solution we will have like a 40ai gate or some other CMA will help but it’s dependent on. I do see that the market get definitely more broader bigger because there’s more attack service to cover and also more function needed both inside and the product and also in the consumer and also in different region.

John Whittle — Chief Operating Officer

To your other point, we do see any refresh opportunity as an opportunity to expand. And when you look back five or six years, we didn’t have a lot of the solutions that we have right now that are at the maturity level that they’re at right now. So you know, anytime we can have those conversations, whether through our partners or through our sales force, it’s an opportunity for us to expand to not only sell the firewall but to sell beyond the firewall.

Christiane Ohlgart — Chief Financial Officer

And I would any of the discussions with regards to firewall upgrades at the edge is combined with the Fortisasi discussion because it’s so compelling for our customers to expand.

Operator

Our last question comes from Brian Essex at JP Morgan. Brian, your line is open. You may unmute and ask your question.

Brian Essex

Great, thank you very much for taking the question and congrats on some solid product growth this quarter. I guess I wanted to just maybe one question with regard to memory questions that were asked previously. Ken, just really appreciate the fact that you have you know, six months of inventory supply. Could you help us understand the dynamics there? Maybe what, what percentage of your bill of materials is exposed to memory and then how your contractor agreements, how long do you have those committed out. Just understand that as we see like the acceleration in prices here maybe a little bit more clarity in terms of how do you manage your your supply chain.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

I think we are very similar to any other system server tend to be 10 to 20% cost come from the memory because we also manage a lot of manufacturer component directly with the supplier instead of go through some third party. That’s where we tend to have some direct contract. That’s also depend on the lead time. I think this time probably a little bit different than five years ago. Five years ago. I see that there’s like communication chip, there’s some cpu, there’s a lot of this time probably more related memory. Actually you can track the memory.

There’s a daily memory price tracker Actually you can see somehow the last couple days since starting coming down. So it’s kind of interesting. But for us we like I said, we do maintain six months inventory and also based on the growth, based on the projection sometimes we also kind of up and down and also depend on the product. So we feel this is the opportunity just like how we did five years ago. It’s the opportunity for us to gain market share and also we well prepare for that.

Brian Essex

Right. Super, super helpful. Maybe quick follow up for Christiana on the secure networking side. How much of that was networking like switches and access points versus more firewall mix. Just kind of curious to get the mix there and how that might influence what you’re thinking in terms of software services acceleration in the back half of the year.

Christiane Ohlgart — Chief Financial Officer

So it was a broad based mix. So pretty much similar growth rates across all components. So we had good firewall growth as well as APs and switches.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Also the reason they buy the switch and AP is because we have this we call 40 link technology. They link multi switching AP to the 40 gate and then using 40 gate to process certain traffic. Like if WI fi they identify there’s a visitor that traffic probably goes to the 40k. It’s more like a kind of a local SASE approach with the hardware agent which is ap. With the hardware agent the same thing for the switch that’s actually go a lot of for the internal segmentation so to kind of broaden security inside the local area networking.

That’s where the convergence we see happening. But I think on the person definitely the 40 gate is the key part is all leading by the 40k. The other part is a pretty small I have to say.

Brian Essex

All right, really helpful caller, Ken. Thank you so much.

Ken Xie — Founder, Chairman of the Board, and Chief Executive Office

Yeah, thank you.

Operator

We have no further questions at this time. I will now hand it back to Anthony Luskri for closing remarks.

Anthony Luscri — Vice President, Investor Relations

Thank you. I’d like to thank everyone for joining today’s call. We will be attending investor conferences hosted by Bernstein and Morgan Stanley during the first quarter. The Fireside Chat website links will be posted on the events and presentation section of our investor relations website. If you have any follow up questions, please feel free to contact me and have a great rest of your day.