Fortinet CEO Says Pricing Has 'Stabilized, But Not Improved' As Inventory Cushion Fades
Ken Xie said the six-month inventory buffer is gone, component lead times are longer and price increases have slowed.
Fortinet's first-half inventory cushion has faded, CEO Ken Xie said on the company's third-quarter earnings call on Wednesday, with component lead times lengthening and price increases slowing. Fortinet, which sells firewalls and other cybersecurity products built around its Security Fabric platform, still reported product revenue up 37% to $765 million.
The buffer is gone
Xie, Fortinet's founder, chairman and CEO, said the company normally keeps about six months of inventory. That stock let it benefit in the first half, he said, but from the third quarter conditions turned more normal and Fortinet has to source parts like everyone else.
Asked by a Stifel analyst whether Fortinet was supply constrained or buying inventory at higher prices, Xie said he saw "a little bit both," along with somewhat longer lead times for some components. A Stifel analyst had asked what drove the slowdown in growth from the second quarter; Xie said demand was, if anything, stronger than in the first half.
On pricing, Xie said prices have "stabilized, but not improved yet." Increases have slowed since the first quarter but are still creeping up, he said, though forecasting is hard.
Holding the margin line
Xie said Fortinet's policy is to keep product gross margin constant: raise prices when costs rise, cut them when costs fall. Chief Financial Officer Christiane Ohlgart said costs began creeping up in the second half, weighing on product gross margin, while service gross margin offset some of that. She said full-year gross margin guidance stays at 80%.
At the close of the call, Anthony Luscri, vice president of investor relations, corrected Xie's earlier remark that pricing added about 10% to the top line. Luscri said the roughly 10-percentage-point effect applies to year-over-year billings growth, not revenue.
Results and the 2027 question
Total revenue rose 20% to $2.08 billion and billings grew 29% to $2.34 billion, Ohlgart said. Fortinet raised its full-year billings and revenue outlook, and the board approved an increase of roughly $1.2 billion to the buyback, leaving $2 billion of authorization.
Xie said it is still about three months too early to give 2027 guidance, but he expects Fortinet to outgrow the market, which he put at roughly 16% growth. Fortinet's own operation, including its own chips, gives it an edge in the supply chain over most rivals, he said.
Fortinet's 2027 guidance, due in the next earnings cycle, will show whether lead times and component costs reach its product margins.
Sources
- Fortinet falls despite strong Q3 results and higher guidance | Seeking Alpha — seekingalpha.com
- Fortinet Stock: Fortinet Earnings Top Views, Revenue Growth Underwhelms | Investor's Business Daily — investors.com
- Fortinet Beats Expectations But Rosier Outlook Apparently Not Rosy Enough — Barron's
- Fortinet Reports Strong Third Quarter 2026 Financial Results — Yahoo Finance
- The Bet Fortinet Holders Made Before A 138% Jump — Yahoo Finance
