Fortinet Faces Tariff Turbulence - Analyst Flags Margin Risk

Fortinet Inc (NASDAQ:FTNT) could be the most exposed security hardware vendor to newly announced U.S. tariffs, with a potential 60-basis-point margin headwind due to its reliance on Taiwan-based manufacturing.

JPMorgan analyst Brian Essex warns that this exposure could significantly impact the company's margins.

Fortinet's Taiwan Exposure Creates Headwinds

According to Essex, Fortinet manufactures approximately 95% of its hardware in Taiwan, making it highly susceptible to tariffs imposed on the region. His calculations suggest that the company could face incremental tariff costs of roughly $40 million, translating to a 60bps impact on margins.

While Fortinet could mitigate some of this impact by raising prices or shifting manufacturing to other locations, the competitive landscape may shift in favor of domestic peers like Cisco Systems Inc (NASDAQ:CSCO).

Read Also: Is Fortinet Gaining or Losing Market Support?

Check Point, Palo Alto Networks Appear More Insulated

Essex notes that Check Point Software Technologies Ltd (NASDAQ:CHKP) faces relatively negligible tariff exposure, as only 10% of its Bill of Materials (BOM) comes from China, and its U.S. revenue exposure is around 35%.

Meanwhile, Palo Alto Networks Inc (NASDAQ:PANW) has proactively addressed tariff risks by shifting contract manufacturing to Texas and reducing its reliance on Chinese components.

As a result, Essex sees the tariff impact on Palo Alto's margins as minimal.

Investor Concerns, Competitive Implications

Essex highlights that investors have been closely watching Fortinet's exposure to Taiwan and other regions, such as Canada and Mexico.

However, these countries are not currently subject to the latest tariffs, which provides some relief. Still, the competitive implications remain, as companies with less exposure to affected regions may gain an advantage.

Uncertain Path Forward

While the full impact of the tariffs is yet to be determined, Essex stresses that Fortinet's exposure is notably higher than that of its peers. He cautions that further supply chain adjustments or price increases may be necessary to offset these pressures, making the coming quarters critical for investors tracking the stock.

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