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Hello, and welcome to Fortinet's Second Quarter 2026 Earnings Conference Call. 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.
Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Fortinet's Second Quarter 2026 financial results. Joining me on today's call are Ken Xie, Fortinet's Founder, Chairman and CEO; Christiane Ohlgart, our CFO; and John Whittle, our COO. Ken will begin our call today by providing a high-level perspective on our business. Christiane will then review our financial results for the second quarter of 2026 before providing guidance for the third quarter and updating the full year. We will then open the call for questions. During the Q&A session, we ask that you please limit yourself to one question and one follow-up question. 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 10-K and Form 10-Q for more information. 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 for replay via webcast on our 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 will now turn the call over to Ken.
Thank you, Anthony, and thank you to everyone for joining our call. We are very pleased with our excellent second quarter results, driven by our differentiated strategy and our innovation, strong execution and broad-based demand. Billings grew 33%, while total revenue increased 26% propelled by 52% growth in product revenue. Free cash flow more than tripled year-over-year to nearly $1 billion. Based on this strong momentum, we have raised our 2026 guidance. With AI quickly reshaping the security landscape, I would like to offer another angle on the network security space and its trend. By combining our secure networking and Unified SASE pillar, which both run on the same FortiOS to create what we are calling the SASE Firewall. Similar to how UTM NextGen firewall replaced the traditional network-based firewall 20 years ago, I believe this new SASE Firewall, which addresses the fast-growing area of SASE, AI and quantum, represents another massive opportunity for accelerated growth with a much larger total addressable market as shown on slides 4 to 6 of the investor presentation. In the second quarter, Fortinet SASE Firewall business grew 34% to over $2 billion, cementing our position as a top player in this space. What makes Fortinet SASE Firewall unique compared to other competitors' SASE and firewall solutions is that we are the only vendor to develop all key components of SASE Firewall in-house and integrate them into a single operating system, FortiOS. Furthermore, we have developed our FortiASIC technology and invested in our own global infrastructure to accelerate performance and lower cost, making adoption and migration seamless for a large global customer base as shown on slides 10 and 11. Another key advantage of our SASE Firewall is that we are the only vendor offering an easily deployable on-premise sovereign SASE solution together with cloud SASE. As we announced yesterday, the new FortiGate 1200G, the next-generation SASE Firewall that combines local enforcement with cloud-delivered security, meets evolving customer demand for data privacy, performance and AI infrastructure management. We believe this has driven our strong product growth recently and has an addressable market that is approximately 2 to 3x larger than the cloud-only SASE our competitors are offering, and we continue to win SASE deals versus all of the top SASE competitors. We also see strong demand across our other strategic pillar, AI-driven security operations, which had billing growth of 25%, supported by over 20 AI-enabled solutions on our platform. As customers consolidate vendors and simplify operations, we recently launched FortiSOC, a new cloud-delivered AI SOC platform, and expanded FortiEndpoint with new capabilities. As organizations deploy and use AI tools throughout their operations, they realize they must modernize their security to handle the complex high-speed threat of the AI era. Fortinet is uniquely positioned here as our FortiOS platform and FortiASIC technology allow enterprises to securely scale their next-generation AI environment with faster and better protection and simplified operation. Looking ahead, we believe the combination of AI-driven security demand, our integrated and accelerated SASE Firewall platform solution and our strong operating model position Fortinet well for long-term balanced growth with strong cash generation, recurring revenue and a shareholder-focused long-term growth capital allocation strategy while consistently delivering GAAP profitability. I would like to thank our employees, customers, partners and suppliers worldwide for their continued support and hard work. I will now turn the call over to Christiane.
Thank you, Ken, and good afternoon, everyone. We delivered a strong second quarter, exceeding the high end of our guidance across billings, total revenue, operating margin and earnings per share. Our continued momentum reflects broad-based demand and strong execution across customer segments, industry verticals, geographies and our integrated and innovative portfolio of solutions, further validating the strength of our platform strategy. Total billings grew 33% to $2.37 billion, driven by robust demand for physical infrastructure and related attached services across secure networking and Unified SASE. We delivered exceptional billings growth across each of our three pillars in the first quarter, followed by an even stronger accelerating growth rate in each of the pillars in the second quarter. Secure networking billings grew 34%. We saw persistent high FortiGate demand as customers expanded their network security, including operational technology environments, LAN Edge and AI data centers. OT billings increased over 55%, reflecting continued adoption of our solutions in industrial environments with high contribution to growth. We also saw outstanding strength in Unified SASE, where momentum built throughout the quarter, resulting in 35% billings growth. Adoption of FortiSASE within our installed base increased to 90% of large enterprises. Our success is highlighted by FortiSASE billings growing over 100%, benefiting from expansion sales across our installed base, competitive replacements and new wins with large enterprises. This momentum was driven by customers recognizing us for our continued investments into flexible deployment strategies for SASE, including our new SASE Firewall strategy. The SASE Firewall natively converges firewall, SASE and hybrid mesh capabilities to protect users, applications and data across the data center, cloud and remote workforce. Instead of routing high-volume east-west traffic up to a cloud point of presence and back, it inspects and enforces security locally while seamlessly leveraging SASE for outbound traffic. Billings from AI-driven security operations grew 25%, driven by strong upsell momentum as our installed base increasingly consolidates point solutions onto our broader platform. Turning to revenue, total revenue grew 26% to $2.05 billion, with product revenue increasing 52% to $773 million. Accelerating product revenue benefited from strong FortiGate unit growth and an increase in ASPs as customers shifted towards higher-performing models. Customer investments to secure AI workloads and mitigate AI-related risks drove both new business and upgrade activity across our installed base, supporting growth across hardware, software and attached services. Service revenue grew 14% to $1.27 billion, with growth improving from the prior quarter. Service billings growth increased 26% and total deferred revenue increased 17%. This quarter's improved service revenue alongside robust product momentum and operational improvements driving revenue conversion reinforces our confidence in the long-term durability of our service business. We believe the first quarter of 2026 marked the trough for our service revenue growth rate, and we anticipate a positive trajectory in our growth rates going forward. Taking a step back, our results reflect strong ongoing momentum from the durable market themes shaping customer priorities. Today, bad actors are leveraging AI to automate and scale sophisticated attacks, increasing the speed and complexity of threats facing organizations. Consequently, cybersecurity has become an urgent business priority with high visibility at the executive and Board levels driving faster investment decisions. In addition, regulatory activity requires companies to act. In response, enterprises are increasingly upgrading their network security infrastructure to support the demands of AI-driven workloads and growing data volumes, more complex distributed environments and the need for stronger network segmentation. Our strong second quarter results and outlook continue to reflect several important market dynamics, including the ongoing convergence of networking and security, increased investments to secure AI infrastructure, accelerating IT and OT convergence and growing demand for high-performance security solutions that address evolving compliance and sovereignty requirements. This sovereignty theme is especially concentrated in EMEA and across public sector customers globally, playing directly into our strong market position in the region and that customer segment. As we look ahead, we continue to see these market dynamics gaining momentum, supported by ongoing technology upgrades, vendor consolidation and the continued expansion of enterprise attack surfaces across cloud, AI, OT and critical infrastructure environments. AI is becoming a dominant driver of security infrastructure modernization. As organizations move from AI experimentation and early adoption toward broader deployment, they require security platforms capable of protecting AI models and data sets while securing large volumes of east-west traffic and enforcing zero trust segmentation across distributed AI workloads. To navigate this growing complexity, customers are progressively looking for integrated platforms that provide shared telemetry, improved visibility and reduced operational overhead. Fortinet addresses these evolving needs with a comprehensive strategy centered on three core areas: securing AI data centers, protecting AI-driven applications and delivering AI-native security operations. For example, a new cloud provider offering hosted infrastructure for generative AI workloads selected Fortinet to secure AI data centers in an eight-figure win. This builds on a seven-figure deal we secured in the first quarter, further enabling the customer's rapid expansion. They chose Fortinet for our strong price-for-performance advantage and our ability to deliver scalable, high-throughput security. This enabled the customer to accelerate deployment of new capacity while maintaining consistent security and operational efficiency as demand for accelerated computing continues to grow. This expansion reflects a broader theme we saw in the quarter with many AI data center wins from customers scaling their AI infrastructure. AI is creating demand for high-performance security solutions that serve as the foundation for secure, compliant infrastructure. As organizations gain greater awareness of AI-enabled attack technologies, security teams are accelerating investments to ensure their infrastructure can deliver the performance and protection required for the next generation of threats, which also require SASE technologies. To meet this critical need for high-performance security, Fortinet supports complex customer requirements through cloud-based, hybrid on-premises and sovereign SASE offerings, enabling organizations to deploy SASE in the environments that best meet their operational and regulatory needs. Customer demand continues to grow with our flexible deployment approach, representing a meaningful differentiator. In a competitive displacement win, a global pharmaceutical company signed a seven-figure FortiSASE deal to secure over 45,000 users, replacing its incumbent SSE-only provider. The customer chose Fortinet for our unified architecture and integrated platform approach across SD-WAN, next-generation firewall and switching, which reduces complexity and delivers significant cost savings versus managing multiple point solutions. A key differentiator in this SASE win was our ability to extend security processing to the edge through our on-premises appliances, providing greater control, improved performance and deeper visibility compared to a cloud-only architecture. This deal validates our strategic rollout of FortiSASE Outpost, which is specifically engineered to bring local SASE enforcement closer to users and applications. This win also highlights our platform advantage as we were the only vendor able to meet the customer's full set of technical requirements while enabling centralized management, simplified operation and enhanced end user experience. Beyond AI and SASE, OT security remains a critical business and board-level risk priority. The threat landscape has expanded beyond traditional OT environments into critical infrastructure, supply chains and manufacturing operations. With Fortinet's integrated platform approach, customers gain visibility across both their OT and IT networks. Consequently, we continue to see strong demand across our OT portfolio and related services, driven by the combination of increasing cyber threats, AI adoption and geopolitical uncertainty. In a seven-figure deal, a major utility organization selected Fortinet to support a large-scale communications modernization OT initiative spanning thousands of distributed field locations. The deployment leverages our integrated FortiOS platform to enable reliable, secure connectivity for operational environments while simplifying management and reducing infrastructure complexity. This engagement demonstrates Fortinet's ability to support mission-critical infrastructure initiatives. Our strong results highlight our continued execution against the durable market themes shaping the cybersecurity industry. This is reflected in our services acceleration in the second quarter and our improved services outlook for the year, reinforcing the compounding strength and high-margin predictability of our recurring revenue model. As organizations navigate AI adoption, expanding attack surfaces, evolving regulatory requirements and complex infrastructure environments, we believe Fortinet's integrated platform approach positions us well to capture share, deliver sustained growth and create long-term shareholder value. Turning to margins and cash flow, non-GAAP gross margin of 80.9% exceeded the high end of guidance, while GAAP gross margin was also strong at 80.2%. Non-GAAP operating margin of 38% was a second quarter record, up 490 basis points. This performance exceeded the high end of our guidance, driven by stronger-than-expected revenue growth, disciplined cost management and growing efficiencies from our AI initiatives. Moreover, our GAAP operating margin of 33.7% continues to be one of the highest in the industry. The strong operating performance translated to the bottom line. Non-GAAP earnings per share increased 41% to $0.90, while GAAP earnings per share grew 44% to $0.82, significantly outpacing our top line growth, reflecting high-quality earnings supported by disciplined stock-based compensation and continued capital return over the past year. Free cash flow more than tripled year-over-year to $966 million, benefiting from improved linearity, higher billings and strong working capital discipline. Adjusted free cash flow was $996 million, representing an exceptional margin of 49%. We repurchased 1.9 million shares of common stock for $146 million during the second quarter and 12.5 million shares for $973 million year-to-date, which represents an average price for repurchases this year of around $78 per share. The remaining share repurchase authorization as of today is approximately $766 million. Now moving on to guidance. As a reminder, our third quarter and full year outlooks, which are summarized on slides 23 and 24, are subject to the disclaimers regarding forward-looking information that was provided at the beginning of the call. Consistent with our disciplined and prudent approach to guidance, our strong first half of the year supports a higher full-year outlook. We are raising our guidance across all top-line metrics, including billings, revenue and service revenue as well as operating margin and earnings per share while managing the remainder of the year on a quarter-by-quarter basis. This quarter's improved services revenue growth, along with a strong outlook, allows us to raise our service revenue guidance, reflecting a positive trajectory in our service revenue growth rates. For the third quarter, we expect billings in the range of $2.25 billion to $2.35 billion, which at the midpoint represents growth of 27%. Revenue in the range of $2.01 billion to $2.10 billion, which at the midpoint represents growth of 19%. Non-GAAP gross margin of 79% to 81%, non-GAAP operating margin of 35% to 37%. Non-GAAP earnings per share of $0.83 to $0.87, which assumes a share count between 741 million and 745 million. Infrastructure investments of $100 million to $150 million. Non-GAAP tax rate of 18% and cash taxes of $100 million to $130 million. For the full year, we expect billings in the range of $9.35 billion to $9.55 billion, which at the midpoint represents growth of 25%. Revenue in the range of $8.02 billion to $8.18 billion, which at the midpoint represents growth of 19%. Service revenue in the range of $5.18 billion to $5.22 billion, which at the midpoint represents growth of 14%. We continue to expect service revenue growth to pick up in the second half of the year, driven by accelerated product revenue growth, a key leading indicator. Non-GAAP gross margin of 79% to 81%, non-GAAP operating margin of 35% to 37%. Non-GAAP earnings per share of $3.41 to $3.47, which assumes a share count between 741 million and 745 million. Infrastructure investments of $350 million to $550 million. Non-GAAP tax rate of 18% and cash taxes of $400 million to $450 million. I now hand the call back over to Anthony to begin the Q&A session.
Thank you, Christiane. As a reminder, during the Q&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.
分析師問答
Guys, can you hear me okay?
Yes, all good. Thank you.
Congrats on another strong quarter. Ken, maybe for you on that point: this is the second quarter in a row of accelerating billings and product growth. We've all talked about things like AI data center, OT and other trends. But I'm curious, what do you think is driving the accelerating growth here? And just as importantly, how durable do you think it would be?
Yes, Saket, it's a very good question. We spend a lot of time studying whether it's a new market trend or supply or other factors. We do believe the growth is long-term for Fortinet. AI has changed a lot of our security landscape. Also, with our investments in ASIC chips, our own infrastructure and R&D innovation, we are positioned much better than many of our competitors. That's why I introduced the term SASE Firewall. You can see it on investor slide #6. This new platform is starting to replace the traditional NextGen firewall and is also replacing many single-solution SD-WAN vendors and competing well with cloud SASE providers. The cloud-only SASE solutions cannot meet some customer requirements for data privacy and local processing of large volumes of information. So that has driven the change in the landscape. We believe this growth is long-term, similar to how UTM NextGen firewall replaced the traditional network-based firewall 20 years ago.
Christiane, maybe my follow-up for you: how are you thinking about the impact of price increases on your product growth for Q3 and Q4? I think there have been a couple of price increases to reflect higher input costs, but I'm curious how you're thinking about the impact as we go into the second half?
Yes. We have approximately a high single-digit impact built into our billings assumptions for the second half. It is very dependent on product mix and what is being sold because not every product and every service had price increases. If you look back at my prepared remarks, we saw very good unit growth and ASP growth from moving higher in the product mix. So that's a good sign that customers are preparing for more network traffic than previously.
Yes. We are focused on maintaining trust with our partners and customers and maintaining consistent gross margins. We adjust pricing in real time based on component costs like memory, so if component prices go down, we lower our prices accordingly. We do not see excess inventory or pull forward because we communicate clearly to partners and customers that there is no need to take extra inventory. We also have a policy where we tend to start charging 90 days after shipment for some services, so there's no incentive to hold extra inventory.
Congrats on the ongoing strong performance. Ken, I was listening to your firewall SASE commentary. Maybe help us understand, and maybe it's building a little on Saket's question: how is AI propelling the convergence of firewall and SASE forward?
AI definitely generates a lot of additional traffic. There have been studies suggesting machine-to-machine traffic recently surpassed human-to-machine or human-to-human traffic on the internet. AI agents and many AI applications drive a lot of traffic, much of it within the enterprise and data center. We are seeing enterprise customers and service providers demand better visibility and control of this traffic. This accelerates the convergence of networking and security, especially coupled with Zero Trust initiatives. I believe this shift is early but significant. It's similar to our evolution 25 years ago when we started with antivirus-capable firewalls and later evolved to UTM or NextGen firewalls. AI is driving another such evolution, especially within enterprises and service providers.
Maybe slightly more of a strategic question to you, Christiane: with broad-based performance across the three growth pillars, do you think customers are viewing Fortinet as a platform provider similar to how they view the leading platform providers like Palo Alto or CrowdStrike? Is that a fair assessment?
From the customers I talk to, it's definitely a fair assessment. They like the integration of our solutions, the single OS, and the cost benefits that make operations easier. From that perspective, our customers do see us as platform providers and are constantly asking us to develop more functionality to expand the platform.
Yes. We are very focused on network security. Our approach is different from Palo Alto or CrowdStrike: we concentrate on network security with internal R&D, integrating and developing functions within FortiOS and making long-term investments such as FortiASIC and our global infrastructure. These focused investments are starting to show benefits compared to competitors.
And we also do see a lot of customers buy across all three pillars.
Yes.
We're converging the first two pillars. We see many deals where customers are buying secure networking, SASE and security operations together. That indicates we are a platform play. We have a broad solution set that customers like because it's integrated and designed from the ground up to work well together, which is a big competitive differentiator for us.
I just want to make sure: can you hear me okay?
Yes.
Yes.
Congratulations on the strong results. It was great to see acceleration in both Unified SASE ARR and billings this quarter. Is there any way to comment on what component within that category contributed the most to the acceleration? Was it the SD-WAN or the Secure Service Edge side of the portfolio? And as a follow-up, are you seeing SD-WAN or the access part of SASE become a bigger consideration in discussions with customers?
We see FortiSASE more than double year-over-year, and SD-WAN is also growing strongly. Many of the top competitors came through acquisitions and maintain separate approaches for firewall, SD-WAN and SASE, which often require multiple boxes to achieve what we can do in a single box and single OS. We are also seeing growth in what we call sovereign SASE, or on-premise SASE. The example we gave of the global pharmaceutical company shows customers need local data processing and confidentiality. They also have a global footprint and workforce; our combination of on-premise SASE, private SASE, cloud and Fortinet's global infrastructure provides a comprehensive solution. SD-WAN is taking market share from competitors because many of them are not investing in integrated technology post-acquisition. We also see very strong growth in SSE, sovereign SASE and AI-related security.
And ARR growth is occurring in both attached and unattached service solutions.
Can you hear me okay?
Yes.
On services, when you indicated that services growth would increase through the year, I was hoping you could give a little color on the distinction between FortiCare and FortiGuard. Support-related services should increase because you have more firewall units in the field, and that's been going on for several quarters. Is the increase in service growth coming from both FortiGuard and FortiCare, or is it weighted more toward support?
It's both. Growth is coming from attached services, which include FortiCare and FortiGuard, as well as from SecOps, which typically includes more unattached solutions. We see good growth across both.
With the SASE Firewall, we're launching new services like SD-WAN and AI-related security services that can be part of FortiGuard. We see additional services to add on top of traditional firewall and SASE services, which will drive new service business.
To provide more color: when we expand customer deployments, we make sure to sell attached services, including the relevant FortiGuard services.
Yes. The bundled service we launched a few months ago, which bundles SD-WAN and SASE together, is showing very strong growth and is a significant driver for service growth.
Ken, my follow-up is for you: on slide 17, OT billings grew 56%. Could you characterize what's really driving the acceleration in OT and how durable that is? If it's AI-based, it would seem durable, but can you flesh out why and durability?
There are two or three key factors. We have invested in OT for a long time, and we don't see many competitors focusing in this area. Recently, there's growing infrastructure investment in utilities and other critical infrastructure. Our long-term investment in OT technology and our ASIC advantages fit OT requirements well. That gives us a significant advantage compared to competitors, and we expect continued growth. Industry reports show we are a leader in this space.
To add more color on OT: critical infrastructure is being targeted more than in past years, and historically it lacked cybersecurity because OT wasn't integrated into IT. We see a lot of white space in this field. In Europe, regulations like NIS2 require critical infrastructure providers to secure systems and have good reporting and supply chain validations. These drivers make OT a durable growth area for us.
Yes. I think we are probably the only network security vendor focusing on OT security publicly over the last few years.
We've invested and grown this for years, and it's ruggedized solutions that are well-suited for OT environments. Our integrated solutions simplify management. For example, FortiGate integrated with FortiLink, access points and switches is a solution many OT providers prefer. Analysts agree that we're #1 in this sector.
Yes, we think there's net-new logos there too as well.
A couple of questions. First, regarding customers changing traffic patterns with AI: are some increases due to shortening refresh cycles as they need to upgrade to the newest ASICs to accommodate traffic, or how are you seeing refresh behavior from customers? Second, following up on the OT question: in sizing terms for an average data center, how should we think about the OT attach rate, a percentage related to security for a data center build?
AI is definitely changing behavior. AI accelerates the convergence of networking and security. Customers want better visibility into AI agent behavior and AI traffic. We see strong growth in east-west traffic, which benefits from our ASIC performance advantage; our ASICs provide much better performance than competitors. This is visible in both strong product revenue growth and unit growth. Refresh cycles average about five years for boxes, but compared to five years ago, our product revenue has grown significantly and we had 52% product revenue growth this quarter. This is much bigger than simple refresh demand. Customers are replacing traditional firewalls and SD-WAN solutions. Sometimes customers buy for firewall or SD-WAN first and then enable SASE, making categorization difficult. That's why I refer to SASE Firewall: it's the same OS running all these functions. The AI-driven demand and new infrastructure builds contribute materially to this growth.
Sizing of IT versus OT really depends on the industry. In some industries OT can be much bigger, while in others IT is bigger.
Also, when building AI infrastructure, initial investments are often in the underlying infrastructure and utilities—OT-type efforts—before higher layers like servers and model deployment. So we see initial strong OT growth in the early stages of AI infrastructure build-out.
Ken, Fortinet has done a remarkable job navigating the supply chain environment, including during COVID. I wanted to ask about the collaboration with Intel: what does the next phase of the network and security process look like in collaboration with Intel? How does that bring a more advantageous position as you think about future iterations of ASICs and delivering them profitably while navigating high cost inflationary pressures? I have a follow-up for either John or Christiane.
That's a great question. From day one, 26 years ago, we decided to build ASIC chips because network security requires much more compute power than many networking applications. If we relied only on general-purpose CPUs, we would not be able to process data fast enough or add the necessary functions. Our long-term investment in ASICs was strategic; such payback can take many years but yields a significant advantage. As far as I know, we are still the only cybersecurity company developing ASIC chips. Our partnership with Intel is very important because Intel is a major manufacturer for advanced chips. Combined technology and innovation with Intel can bring network security to a new level and expand into new spaces. Network security will continue to expand beyond the traditional enterprise into areas like remote work and consumer spaces. SASE supports this evolution. AI is also a major boost for network security because it creates new vulnerabilities and increases the need for visibility and protection. Long-term investment in ASICs and infrastructure drives performance and lower cost and allows us to pass benefits to customers.
I appreciate that detail. Christiane, you mentioned in your prepared remarks that operating leverage and margin outperformance were tied to revenue beat, cost controls and AI efficiencies. Over the past 6 to 12 months, what operational changes have you made to allow these efficiencies to become more prominent in your profitability profile? Specifically on go-to-market, sales management and forecasting accuracy: have you done anything differently to increase planning accuracy and respond nimbly to strong market demand?
It's a team effort across all functions. We're leveraging technology and our internal AI build-out to develop additional solutions that help us with cost-effective processes and provide better insights. We've done this for years, starting in the support organization, and we've seen success with significantly slower headcount growth or not having to backfill certain roles in support. We are deploying technology across many functions, mining our own data for better insights to make the right business decisions. We will continue to do this.
We also have a culture of being disciplined and not getting complacent when things go well. Ken spreads this culture throughout the organization. When things are going well, we double down on discipline in sales, growth and cost management. AI helps with efficiencies and scaling, and economies of scale contribute as well.
Ken, I wanted to follow up on your comments that the product growth you are seeing today is unlikely due to pull-forward. Could you and Christiane comment on visibility into the pipeline for 2027? We are about six months away from any formal 2027 guidance, but how should we think about product revenue growth into 1H 2027 and durability? In the past you have talked about industry growth of 10% plus and taking share on top of that. Any early reads into how to model next year would be helpful.
It's tough to predict the future, but I can offer two perspectives. One is replacement of older infrastructure, and the other is new growing areas. We see traditional UTM NextGen firewalls and single-point SD-WAN and cloud SASE solutions have limitations, and we are gaining share as customers replace those. We are also well-positioned in new areas such as AI-related security and OT builds. Sovereign and on-premise SASE is a large opportunity, which I estimate to be 2 to 3x larger than cloud-only SASE. These trends support continued growth, but it's too early to give specific numbers for 2027. Christiane has better visibility for formal guidance timing.
We are focused on the durability of our growth. The themes we are seeing—AI, SASE and OT—will continue next year, and regulatory activity in some parts of the world will continue as well. The questions are how much share we can capture from others and how much we can grow within our installed base. We will provide formal numbers in January or February.
Ken, you've talked about the sovereign SASE opportunity being potentially 2 to 3x larger than cloud-delivered SASE. Much of that seems tied to service providers deploying and monetizing their own SASE infrastructure. What are you seeing in the field that suggests providers are prepared to invest behind that strategy? And what are some factors that could slow adoption relative to your expectations?
Many service providers need to expand security services beyond traditional firewall and VPN services. Offering SASE services is important to their customers, and service providers have infrastructure advantages to provide local data privacy and better performance by leveraging local infrastructure. A few years ago, adoption was slower, but we've seen acceleration. Enterprises are also demanding sovereign SASE, as in our pharmaceutical customer example that wanted SASE deployed locally. Our FortiGate 1200G emphasizes outpost SASE deployment, enabling local processing on FortiGate while providing cloud-based management for global policies. This solution works well for both enterprises and service providers. We are working closely with many service providers and are seeing accelerated sovereign SASE deployments now.
Margin guidance is really impressive. Can you talk about visibility into that? And do you envision any more price increases as it stands today?
We want to maintain our gross margin. Memory prices have stabilized in the last few weeks and months. We adjust pricing monthly based on costs, but our policy is to maintain gross margin. The single-digit impact on business from price changes is not the primary driver. The bigger drivers are the SASE Firewall approach, which provides customers better local control of AI and data, and growth areas like OT. We see SASE Firewall as a trend that could drive growth for the next five to ten years.
As a quick follow-up: product growth was very strong. Any sense of the different components—networking versus firewall—how growth profiles were for each?
FortiGate has been the fastest growing component. FortiGate runs FortiOS for traditional network firewall and for SD-WAN and SASE functions, so sometimes deployments begin as secure networking and then quickly enable SD-WAN and SASE. That's another reason to refer to SASE Firewall because it's the same operating system across these use cases. But FortiGate saw the strongest growth.
Fastest growing among the components was FortiGate.
Thank you. I'd like to thank everyone for joining today's call. We will be attending investor conferences hosted by Rosenblatt, Stifel, Deutsche Bank, Goldman Sachs, and Kepler Cheuvreux during the third quarter. The fireside chat web links will be posted on the Events and Presentations 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.