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CSP Inc. Is A Multinational Leading Supplier Of Dense, Rugged,
High Performance Cluster Computer Systems And Cutting Edge IT Integration Solutions,
Focused On Its Growth Strategy
Business Software & Services
43 Manning Road
Billerica, MA 01821-3901
Alexander R. Lupinetti
Chairman, President, and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
Published - October 26, 2007
Alexander R. Lupinetti
Alexander R. Lupinetti is the President, CEO, and Chairman of the Board of CSP Inc.
and has more than 30 years of management experience in the Information Technology
industry. Since his appointment as CEO in 1996, Lupinettis achievements include the
implementation of a new strategic plan that increased revenues from approximately $19
million in fiscal 1997 to more than $69 million in fiscal 2006. Under Lupinettis
leadership, CSP Inc. acquired Ft. Lauderdale, Florida-based Modcomp Inc. and Technisource
Hardware as part of his strategic plan. Prior to his position at CSP Inc., Lupinetti spent
nine years at Stratus Computer Inc. where he was president of three software companies
named Softcom Systems, Inc., Shared Systems Corp., and TCAM System Inc. He also held
senior sales and marketing positions at Stratus and IBM Corporation. He has a Bachelor of
Arts degree from St. John Fisher College in Rochester, N.Y.
Based in Billerica, Massachusetts and founded
in 1968, CSP Inc. and its subsidiaries develop and market best of breed IT solutions,
systems integration services, and high-performance computer systems. CSP's Systems segment
includes the MultiComputer Division, which supplies high-performance Linux cluster systems
for a broad array of defense applications, including radar, sonar and surveillance signal
processing. The Company's Modcomp Inc. subsidiary, part of its Service and Systems
Integration segment founded in 1970 and which includes the fiscal 2003 acquisition of
Technisource, is a leading provider of cutting edge IT solutions and systems integration
services for complex IT environments. Modcomp works with third parties to develop
customized solutions in the global IT markets and has offices in the U.S., U.K. and
CEOCFO: Mr. Lupinetti, what is your current vision for
Mr. Lupinetti: We are a strategically focused,
multinational, technology company. We have been in business for forty years and we
envision a bright future as a leading supplier of dense and rugged, high performance
cluster computer systems and cutting-edge IT integration solutions.
CEOCFO: Would you tell us more about CSP?
Mr. Lupinetti: We have two segments we work in
that are very diverse: a systems segment, and integrations segment. In the systems segment
we provide high performance, dense and rugged cluster computer systems based on open
systems technology for military applications. In laymens terms, we build very high
performance computers that take very little space. They can go on airplanes and boats to
do radar, and sonar signal processing applications where they have very little space and
virtually no air conditioning but need super computing type of performance. In the
integration segment, we provide cutting edge IT infrastructure solutions for complex IT
CEOCFO: Is it the type of components or software that
enables you to do that?
Mr. Lupinetti: It is a combination. We use
off-the-shelf technology, but the way we package it and make it rugged is what
differentiates us from the other commercial products that are in the marketplace. We
integrate the components and package them together to provide very high performance in a
very small package.
In our integration business, we are a leading provider of cutting-edge services for
complex IT environments like advanced storage systems and security consulting services
along with the best of breed hardware and software available from industry leading
suppliers. What we do is resell the leading hardware and software products in the market
from companies like Hewlett Packard Co. (NYSE-HPQ), IBM (NYSE-IBM), Cisco Systems Inc.
(NASDAQ-CSCO), Sun Microsystems Inc. (NASDAQ-JAVA), and EMC Corporation (NYSE-EMC) and
integrate them for our customers so that they can upgrade their IT departments seamlessly.
They may need to upgrade their servers for example, using the latest technology called
virtualization. We provide the software and integration services for products from
companies like VMware, Inc. (NYSE-VMW) and Virtual Iron.
The reason this is a hot technology is that over the last several years data centers have
become very complex because of the large number of different types of servers that
have been installed for new applications, so what the virtualization allows you to do is
to consolidate all the servers regardless of what operating systems they are running. On
one large server, you can consolidate many servers that might be running Microsoft
Windows on one server and Unix on another server and Linux on another; put them all on one
server, saving space, power and complexity. The same can be done for their storage systems
as well. These are the type of services that add value to the products that we resell and
CEOCFO: Who is using your services in both segments?
Mr. Lupinetti: In the systems segment we sell
pretty much exclusively to the major prime contractors that sell to the Defense
Department. For example, this year we are having the best year in the history of our
systems business primarily because of an $18 million contract that we are fulfilling with
Raytheon Co. (NYSE-RTN), one of the largest defense prime contractors. We also do business
with Lockheed Martin Corp. (NYSE-LMT) and others that are suppliers to the Defense
Department for applications like radar, sonar, and surveillance signal processing
CEOCFO: Do you see growth in that business continuing?
Mr. Lupinetti: Yes we do. Because of terrorism
and the wars in Afghanistan and Iraq, there is certainly reason to believe that the
Defense Department will continue to invest in strategic programs to maintain our military
leadership. The segment we compete in is called the embedded computer segment and it has
been sized as large as $14 billion. The actual sub-segment that we compete in is roughly
5% of the $14 billion or $700 million, which provides significant opportunity for us to
grow in the future.
CEOCFO: What is the competitive landscape like for you?
Mr. Lupinetti: It is very formidable. We are one
of the smaller players, which we use to our advantage. Competition has changed
significantly over the last three or four years through consolidation. The mainstay
competitor we go up against is Mercury Computer Systems (NASDAQ-MRCY); they are
significantly larger than we are, with over $100 million in sales from defense
applications. Curtiss Wright (NYSE-CW) which is $1
billion company has bought several small competitors and GE Fanuc (NYSE-GE) has done the same in terms of buying several smaller
defense oriented companies so that they can be large players in this industry.
CEOCFO: Why should customers choose CSP?
Mr. Lupinetti: Foremost because we have a
technically superior product. We have made a long-term strategic commitment to open
architectures using open-standard software and hardware and we believe that we are a
leader in this area when compared to the larger competitors. For example, our latest
technology that we just started shipping, called the 3000 SERIES, has ten gigabit
Ethernet capability, which is cutting edge technology and we believe that we are the only
one shipping production level products at this point and it gives our customers the best
network throughput capability in the market today. They are able to take our subsystems
and seamlessly integrate them with the other systems and applications that may be running
on the platform like a boat or a plane using the ten gigabit Ethernet feature.
CEOCFO: You mentioned using your size to your advantage; how
do you do that?
Mr. Lupinetti: When we won the $18 million
contract with Raytheon we convinced them that as a smaller company we are more flexible
and more willing to work directly with their engineers on their unique requirements. We
believe that our larger competitors have a much more difficult time doing this. Therefore,
since we have demonstrated our ability to work shoulder to shoulder with our customers we
use this as a lever to differentiate ourselves in the marketplace.
CEOCFO: Who is using your services in the systems
integration area and how do you get them to use more?
Mr. Lupinetti: This is a predominantly
commercial business. We sell to all industries. Our largest customers is E-Plus, a large
wireless operator in Germany. We actually sell to them through a large integrator called
ATOS Origin. We win this type of business because of our reputation, long-term standing in
the marketplace and our strong financial position and balance sheet. We offer cutting edge
storage and security consulting integration services along with best of breed hardware and
software products from the industry leading providers. What we are selling is our
technical capabilities, for example, we just started ramping up a new practice in our
German subsidiary called ILM, which is Information Lifecycle Management. To capitalize on
the demand for these services, we have hired five new professionals to focus on identity
management, archiving, and network migration. This is an ideal complement to our security
and data storage practices, which we have had for many years and have been very successful
CEOCFO: Are there geographic areas internationally that you
would like to be more involved in?
Mr. Lupinetti: We are very balanced already
geographically. Last year we did 54% of our business in the US and 46% internationally,
which I think is exceptional for a company our size. This is particularly advantageous
right now because of the currency valuation difference in Europe, which is helping us fuel
our growth. Our focus now is in Germany where we have a large subsidiary, the UK where we
have a smaller subsidiary and Japan where we have a large distributor that we work with.
That is where we have invested internationally and will continue to do so.
CEOCFO: How do you attract the people you need in the
Mr. Lupinetti: We have been in business in both
our segments for close to forty years. We have people in the company who have been with us
for twenty plus years in both divisions who establish the foundation of the company and
from there we are able to attract young people coming from universities that have
technical degrees. We allow them to come in and co-op with us while they are still in
school and then we hire the best ones. In the integration business, we go out and look for
really strong young talent, bring them in and train and groom them by leveraging our large
base of experience. Recruiting young talent today is a real challenge so we leverage our
reputation and stability to hire the best people
CEOCFO: Do you see acquisitions as part of your strategy
Mr. Lupinetti: It has always been part of our
strategy. We have grown both organically and through acquisition. We have made several
acquisitions over the eleven-year period I have been here. We are continually looking for
companies that fit into one of our strategies and are compatible with us culturally to
help us grow both our top and bottom lines. We only look for companies that are profitable
and can be accretive immediately.
CEOCFO: What is your scenario for the next few years?
Mr. Lupinetti: In the next few years, I see us
continually fueling our growth both organically and through acquisition. The marketplace
for integration services is very large, the worldwide IT market is $1.5 trillion growing
to $2 trillion over the next few years, and there is tremendous opportunity for us to
continue to grow there. We will continue to recruit good technical and sales people to
increase our share of that market. In the defense segment because of the global
environment, I think that the opportunities will continue to grow, albeit they will be
uneven. The current DoD budgets are constantly being reshuffled a bit because of the
tactical needs of the military. We have always stated that our defense business would be
uneven because of the nature of defense contracts. However, I have confidence that with
our new technology, we are competitive and will continue to grow in the long-term.
CEOCFO: Is there an opportunity for the defense side outside
of the US?
Mr. Lupinetti: Yes. We have several
international customers mostly in Asia.
CEOCFO: Are people coming to you?
Mr. Lupinetti: There are very few competitors at
the high end of the embedded computer market so at times prime contractors working on new
programs have contacted us, but this is the exception. The real work is done the
old-fashioned way; through our salesmen working with our customers, trying to find new
prospects and programs. On the integration side, it is also, done the old fashioned way
with our sales forces knocking on doors and fighting the competition to win new
CEOCFO: You have had five consecutive quarters of growth so
it must be working!
Mr. Lupinetti: So far, the business models that
we have developed for both of our segments are working well, particularly in the last five
years we have grown every year. For fiscal 2006, CSP reported $69.0 million sales, or
$0.52 per diluted share, a 20% increase over fiscal 2005. In a like manner, sales
increased 28% to $65.9 million for the first nine months of fiscal 2007. We expect that over the
next few years, we will exceed $100 million in sales and our goal is to grow the bottom
line on an average annualized basis of ten percent per year.
CEOCFO: Why should potential investors be interested, and
what doesnt jump out that should?
Mr. Lupinetti: Our investors have placed their
confidence in us because they see a small, diversified company not dependent on one market
or product line. We have a stable management team and a very strong balance sheet and that
is why they look at us. We have no debt with over $14 million in cash. We have been in
this situation for many years. We have a track record of strong management along with the
ability to take risks to go into new markets and buy other companies. CSPI is a balanced,
diversified, strong global company. We are not dependent on one geographic market. Those
are primarily the things that may not come out when you initially look at the
CEOCFO: What should readers take away about CSP?
Mr. Lupinetti: We are very focused on our
growth strategy, we have a competitive strategy and we will continue to execute our
strategy and achieve our goals. We have a strong management team and we will continue to
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