Fortinet Set To Go IPO

Security appliance company Fortinet on Monday increased the number of shares it will offer, expecting to raise $125 million by offering 12.5 million shares, including 6.7 million from insiders, at a price ranging between $9 and $11, as opposed to the previous plan of 12 million shares.

The Sunnyvale, Calif.-based company embarked on its IPO, expected to list on the NASDAQ Wednesday, in August, which is underwritten by investors Morgan Stanley, JP Morgan and Deutsche Bank. The company has undergone its "quiet period" over the last three months prior to the anticipated pricing announced this week.

And partners say that they have confidence in Fortinet's new public offering, despite the global economic downturn that has crippled IT budgets and bogged down sales in all technology sectors.

"It's the first valley IPO in the technology space in about 24 months. That speaks volumes that they're confident enough to do that," said Jim Wallworth, president of Apollo Information Systems, based in Los Gatos, Calif. "Their revenue is strong. From all indicators that I have, it could be a really good thing."

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By all accounts, the Sunnyvale-Calif.-based company seems solid enough, partners say, booking $229 million in sales over the last year throughout the recession. Meanwhile, Fortinet gained momentum leading up to its impending IPO by securing 15 percent of the market share for Unified Threat Management (UTM), a security segment expected to reach $3.5 billion in sales by 2012, according to Renaissance Capital.

Thus far, Wallworth said, the company has managed to gain recognition through product quality and reliability, as opposed to strategic marketing.

"There is some market recognition with the minimal amount of marketing that they've done. They're gaining market recognition based on reputation as opposed to marketing," he said.

However, some partners say they hope that the infusion of cash supplied as a result of its IPO will enable the company to put more resources into its marketing efforts, which, in turn, will increase a lagging brand awareness.

"The things that have been a challenge have been around the awareness side for us," said Jonathan Dambrot, managing director of Prevalent Networks, based in Warren, N.J. "I think if the IPO provides Fortinet a large injection of cash, and they use that to increase market awareness, that would be a huge benefit."

Other partners speculated that Fortinet might use IPO revenues for acquisitions, which could also drive additional brand awareness.

Another concern is Fortinet's ability to play in the enterprise space.

Fortinet made its name in the marketplace with its UTM devices, which incorporate firewall, intrusion prevention and antimalware into a single box. Since its founding in 2000, the company has shipped more than 450,000 devices to more than 25,000 clients, while serving 322 of the Fortune 1000 and 202 of the Global 1000.

Fortinet has a strong play in the SMB market, but has also made inroads in recent months into the mid-enterprise space with the release of its FortiGate 1240B appliance, as well as a new FortiGate multithreat security appliance, the FortiGate-200B, aimed at remote and branch office locations. The company also delved into the enterprise with the launch of its FortiClient Endpoint Protection Suite, introducing a host of enterprise-class features to support complex and resource-intensive environments.

Fortinet competes head-to-head with networking giants Cisco and Juniper, which respectively command 9 percent and 6 percent share of the UTM market, but have a sizeble foothold in the enterprise segments. Meanwhile, partners say that they think Fortinet should continue its enterprise push in order to stay competitive.

"For me, it's about how do we drive more enterprise business, that's how I make my money," Dambrot said. "(Fortinet's) continued large enterprise focus will be a good thing for us."