Silicon Valley Brothers Build Billion Dollar Cybersecurity Fortunes

February 7, 2019, 9:14 PM UTC
Ken Xie-fortinet-Boao
HWWJM7 Boao, China's Hainan Province. 23rd Mar, 2017. Ken Xie (C), founder, president and CEO of U.S. network security company Fortinet, addresses the session of The Innovators' DNA at the Boao Forum for Asia Annual Conference 2017 in Boao, south China's Hainan Province, March 23, 2017. Credit: Yang Guanyu/Xinhua/Alamy Live News
Xinhua/Alamy Stock Photo

Cybersecurity has unlocked riches for Ken and Michael Xie.

The Chinese-born brothers are now billionaires from their stakes in Fortinet Inc., the Silicon Valley-based network security software firm they co-founded almost two decades ago, according to the Bloomberg Billionaires Index.

Spurred by high-profile data breaches and malware attacks, cybersecurity has become a growing priority for companies. Cloud-focused firms including Fortinet and Palo Alto Networks Inc. have benefited as businesses update their computer infrastructures, posing a threat to more established network software providers such as Cisco Systems Inc. and Juniper Networks Inc. Fortinet counts most Fortune 500 companies as its customers, according to its website.

‘Fragmented Market’

“It’s been one of the innovative companies for next-generation products as companies have looked to cyber more,” said Mandeep Singh, a senior technology analyst at Bloomberg Intelligence. “It’s a fragmented market, so there’s plenty of room for a player to boost their position.”

The cybersecurity software market should grow 10 percent a year through 2023, according to research firm MarketsandMarkets. Fortinet is outpacing that, with 2018 revenue increasing 20 percent to $1.8 billion from a year earlier. The firm’s shares closed at $81.22 on Wednesday, more than six times its 2009 public offering price. They dipped on Thursday after fourth-quarter adjusted profit missed analysts’ estimates.

“We are excited about [the] significant opportunity ahead,” Ken Xie, 56, who is a chief executive officer, said on a call Wednesday after Fortinet reported results. He predicted continued growth in 2019, but added: “you need to keep up the innovation.”

See also: Fortinet targets boosted as analysts see durable growth

A spokeswoman for Sunnyvale, California-based Fortinet didn’t immediately respond to requests for comment.

Family Venture

Ken Xie has been a U.S. citizen since 1998 and started his first cyber-security company while studying electrical engineering at Stanford University. He co-founded Fortinet in 2000 after creating and then leaving another online security firm, NetScreen Technologies. Juniper Networks acquired NetScreen in a 2004 all-stock deal valued at $4 billion.

A decade and a half later, Fortinet’s $13 billion valuation exceeds that of Juniper Networks. Ken Xie is the largest individual shareholder, with a 7.4 percent stake worth $1 billion. He’s also collected more than $40 million through share transactions, according to data compiled by Bloomberg.

Michael Xie, the firm’s president and chief technology officer, studied electrical engineering at Canada’s University of Manitoba. He owns a 7.1 percent stake, with almost half held through family trusts, and has collected more than $70 million through share transactions.

Among other cybersecurity companies, Check Point Software Technologies Ltd. CEO Gil Shwed has a $2.9 billion stake and Palo Alto Networks co-founder Nir Zuk’s shares are worth almost $300 million.

“It’s a space that keeps changing and growing fast, keeping me learning every day,” Ken Xie said in an interview last year. “And that I like.”