Chinese-born brothers build billion dollar fortunes in Silicon Valley with network security software firm Fortinet

Cybersecurity has unlocked riches for Ken and Michael Xie. The Chinese-born brothers are now billionaires from their stakes in Fortinet, 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, have benefited as businesses update their computer infrastructure, posing a threat to more established network security providers such as Cisco Systems and Juniper Networks. Fortinet counts most Fortune 500 companies as its customers, according to its website.

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“It’s been one of the innovative companies for next-generation products as companies have looked to cyber more,” said Mandeep Singh, 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 per cent a year through 2023, according to research firm MarketsandMarkets. Fortinet is outpacing that, with 2018 revenue increasing 20 per cent to US$1.8 billion from a year earlier.

Fortinet’s shares closed at US$81.22 on Wednesday, more than six times its 2009 public offering price. The stock dipped on Thursday after fourth-quarter adjusted profit missed analysts’ estimates.

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

A spokeswoman for Sunnyvale, California-based Fortinet declined to comment on the brothers’ net worths.

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Ken Xie has been a US citizen since 1998 and started his first cybersecurity 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 US$4 billion.

A decade and a half later, Fortinet’s US$13 billion valuation exceeds that of Juniper Networks. Ken Xie is the largest individual shareholder, with a 7.4 per cent stake worth US$1 billion. He has also collected more than US$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 per cent stake, with almost half held through family trusts, and has collected more than US$70 million through share transactions.

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