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Fortinet had its Accelerate 2022 conference today. Its executive team presented its current strategy and expectations for the future and highlighted what it thinks are its key differentiators in the marketplace. The company explained: (a) the importance of its ASIC and its software code-base called FortiOS, (b) its services bundling strategy called "Fabric," and (c) its sales and marketing differentiation (the presentation was intended mainly for its selling partners as well as for financial analysts). We were reminded of the relative simplicity of Fortinet's messaging (Fabric, ASICs) and the solid financial results that illustrated its sales team and partners' success (it grew product revenue 54% Y/Y in the most recent quarter). ASICs and FortiOS. The company explained that it takes around four years to develop an ASIC. According to its ASIC roadmap, it has three types of ASICs: Network Processing, Content Inspection, and Entry-level Systems-on-Chip. CEO Ken Xie explained that the company uses 7nm process geometry semiconductors for its ASICs, which we assume means for its CP10 (content inspection) based on the timeframe shown in its ASIC Roadmap. The company's marketing strategy around its ASICs is that these systems allow its firewall platforms to perform better than competitors.  Fortinet Accelerate 2022 ASIC Roadmap The company's operating system software that runs on its firewall platforms has evolved to include many functions besides standard firewalling, including SD-WAN, Enterprise WLAN Controller, and SASE. What's interesting is that Fortinet is up till now has been taking an appliance-focused strategy and integrating many non-firewall services into its FortiOS. However, the company indicated that the OS will find itself in many environments in the future. Indeed, management highlighted that it sells FortiOS to four different environments today, including on appliances, as virtual software (that can operate in a data center, on a cloud hyperscaler infrastructure, or as cloud-native SaaS), as a container, or as cloud-delivered services. The company said that VM revenues are growing very fast, but expects its VM revenue stream to "go cloud-native." The company says it is "working on" a SaaS business and that its customers will consume these SaaS services through Fortinet's own cloud service. To summarize, management said that its R&D team is heavily investing in cloud designs and expects to make new cloud-related announcements soon.  Fortinet Accelerate 2022 FortiOS Everywhere Fabric. The company highlighted its sales strategy called "Fabric." CEO Ken Xie said that Fortinet charges less for its services, only around 20% of product prices and that when it uses bundling (which we interpret as synonymous with its "Fabric" strategy), it "discounts a lot." The company shared a slide highlighting "Broad Service with Half the Cost." The slide highlighted its FortiCare, FortiGuard, and FortiTrust services on this slide. On the company's earnings call earlier in May, it said it is "giving away" services in some cases. The company's Fabric offering includes services/functions/software such as "Access & Endpoint Security," FortiGuard Threat Intelligence," "Secure Networking," "Cloud Security," and "Network and Security Operations." If we were a competitor to Fortinet, we would find it frustrating to compete with Fortinet's discounting of these services – yet customers seem to embrace Fortinet's integrated product offerings.  Fortinet Accelerate 2022 Security Fabric Sales and Marketing. The company rapidly embraced SD-WAN a few years back, and now many of its firewall customers are using the same appliances to run SD-WAN networks. Likewise, Fortinet has embraced the SASE marketing moniker and has found large selling partners for this offering. Likewise, the company has adopted a selling strategy called "OT" that takes advantage of its ruggedized products (first introduced in 4Q20); it has experienced substantial growth in new vertical markets such as manufacturing and construction. The company's management has likewise embraced the industry trend of converging networking and security functions. It expects to sell using its positioning as a leader in "Secure Networking." Fortinet has experienced strong growth LTM product growth of 44% growth, which supports Fortinet's decisions to embrace SD-WAN, SASE, OT, and Secure Networking.
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Nokia Unleashed Next-Gen Routing with FP5 ASIC On September 21st, Nokia launched the company's fifth-generation IP routing silicon (FP5). Along with support for 800 Gbps routing ports, the company also announced new Fixed form factors, which are becoming popular as Routing supports new uses cases around supporting more distributed IP edge routing architectures. Along with the increase in performance came a significant power reduction in the cost per bit of bandwidth and an increased set of security features. The company also announced ANYsec to extend MACsec encryption capabilities, which are becoming increasingly important to customers and SPs as more mission-critical traffic flows on networks. Since the launch of Nokia's previous generation ASIC (FP4), Nokia grew its market share position in SP Routing via a combination of custom Silicon innovation and merchant silicon to address more use cases. The company also expanded further into enterprise and Cloud use cases. 800 Gbps and the 112 Gbps SERDES technology will begin shipping in 2022, and we view the technology as an essential enabler to how networks need to evolve in Telco SPs and the Cloud. We expect that by 2025 over half the revenue and nearly three-fourths of the bandwidth in Routing will come from 400 Gbps and 800 Gbps products with operators using a mix of traditional Modular systems and smaller Fixed form factors.  Marvell to Add Innovium to Its Portfolio to Enhance High-End DC Switching On August 3rd, Marvell announced its planned acquisition of Innovium for $1.1B. The addition has good synergies. Innovium had several design wins in the hyperscaler segment and Marvell provides additional scale, desire to expand custom, semi-custom, and merchant networking offerings in the Cloud. While the deal is pending regulatoriy approval with a planned close date by the end of 2021, we do not see any impediments to the deal closing or being delayed. We have been tracking merchant silicon performance for over four years and for the entire 12.8 Tbps sampling and production curve and see many positives to this deal. The current state of 12.8 Tbps in 2021 remains the tale of two sets of customers. Over 1M ports of 400 Gbps a quarter ship into three hyperscalers in each quarter already. These customers use a mix of copper and fiber, and Innovium’s market share is impressive as a challenger to Broadcom. The rest of the market is mainly in trials, delayed by COVID-19 and multiple semiconductor shortages. As the market moves to mainstream 12.8 Tbps adoption, those three hyperscalers will move to 25.6 Tbps, a chip that Innvoium is currently sampling. This market dynamic creates an opportunity for Marvell. Not only are there synergies, but Marvell obtains a more substantial portfolio for what lies ahead in networking (chiplets, onboard optics, and silicon photonics) and back-to-back opportunities to win ASIC share. Marvell’s recent product announcements and Inphi acquisition highlight several go-to-market opportunities and new scale as a data center supplier that Innovium can now participate in. 650 Group's early hyperscaler executive leadership interviews indicate positive feedback regarding the announced deal. While this is a consolidation amongst ASIC suppliers, we view the long-term state of Marvell with Innovium as leading to more OEM/ODM ASIC choices and increased innovation and R&D for this market. The deal paves the way for the market to be more robust when we discuss 51.2 Tbps which is not that far out. It’s important to note that the future state of data center switching involves significant innovation and increasing importance inside the data center. Ethernet switches will be critical to deploying AI/ML and other future workload technologies to move beyond plumbing to a key interconnect technology. Turning to vendors, we see an increased interest in using ASICs as a way to differentiate product offerings, and our OEM/ODM interviews indicate a similarly positive view of this announcement. Product launches in 1H21 were slow as vendors took a conservative approach to launch new products and not ship. We view the timing as suitable for OEM/ODM as they look to early 2022 for new product launches. We look forward to learning more when the deal closes and during Marvell’s analyst day later this year. - Alan Weckel, Founder and Technology Analyst at 650 Group.  |
CHRIS DePUY
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