Fortinet IPO validates enhanced security

The Fortinet IPO validates that the tremendous need for enhanced network security and control is overcoming the incredibly tough times on Wall Street this year. Here are some details and a little perspective on the significance of the event for Calyptix as a participant in the UTM (unified threat management aka all-in-one firewall) marketplace. If your customers are still using a consumer grade router/firewalls, maybe this is your wake up call to suggest stepping up their security.

IPO Details. On November 2 Fortinet filed an amended S-1 registration statement with the SEC (See SEC Filling here). The registration statement estimate an IPO offering price of $9 to $11 per share for the sale of 12 million shares of Common Stock. After the offering, there will be approximately 65 million shares outstanding. The IPO will include 5.8 million new shares to be sold by the company and 6.2 million shares to be sold by current shareholders. The market cap for Fortinet after the IPO is estimated to be approximately $650 million. The company will gross approximately $58 million while selling shareholders will harvest about $62 million. The additional 1.8 million over-alotment (extra shares to be sold if there is interest) will consist of more shares from the company that could generate an additional $18 million. The size of the selling shareholder pool could be considering a very strong testament to the strength of this IPO.

Why relevant to Calyptix and our partners?

1. The UTM Solution is here to stay. This IPO validates the continued growth and permanence of the multi-function network security appliance as a critical tool for IT professional. According to IDC, the UTM appliance market will grow from $1.3 billion in 2007 to $3.5 billion in 2012, representing a compounded annual growth rate of 22.3%. Based on IDC data, the UTM market is the fastest growing segment within the network security market, which was $6.8 billion in 2007. The underlying rationale for this explosive growth is the huge value multi-function appliances provide for IT professionals and their clients.

2. The UTM market has barely been scratched. Fortinet and Sonicwall report shipping 0.5 and 1.0 million units worldwide, respectively. Meanwhile Microsoft has publicly estimated the market size of small businesses worldwide with 5 and 75 employees at more than 40 MILLION! Based on these numbers market penetration at this point is less than 10%.

3. Understanding the target customer. The early UTM solutions have been designed primarily for deployment by managed security service providers (MSSPs) or large enterprises with multiple sites. This bias is evidenced by the "product suites" incumbent vendors require (beyond the UTM device) to achieve a comprehensive business solution for a single location (e.g. reporting, email filtering, and other necessary functions). Our AccessEnforcer targets the SMB market that currently eludes the MSSP offerings for any of a number of reasons - including technical complexity, licensing complexity, integration challenges, performance, price, etc. AccessEnforcer simplifies advanced security and networking and expands key functionality to provide everything a small business needs for an edge solution in a single unit.

4. UTM Product Evolution. The SMB network edge solution is destined to evolve considerably over the next 3 to 10 years. IDC analyst Charles J. Kolodgy first coined the term UTM in September 2004 when the he identified a UTM as only a firewall and VPN. For an early industry report see here. It is fair to say our UTM is a bit more comprehensive that the original concept. The key drivers for Calyptix in the continued evolution of our SMB edge solution will largely be (1) the network framework of our SMB customers and (2) the security threats they face. With our focus to be the firewall of choice for Small Business Server, our path is certain to be an exciting one.