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CSP Inc. is wining in the defense market because of a
total commitment to building architectural superior systems using open systems
technologies with a rugged design required for military applications
Technology
Computer Hardware
(CSPI-NASDAQ)
CSP Inc.
43 Manning Road
Billerica, MA 01821
Phone: 978-663-7598
Alexander Lupinetti
Chairman, President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
January 27, 2005
BIO:
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 computer business. Since his
appointment as President and CEO in September 1996, Lupinetti’s achievements include
the implementation of a new strategic plan that increased revenues from approximately $19
million in fiscal 1997 to more than $52 million in fiscal 2004. Under Lupinetti’s
leadership, CSP Inc. acquired Ft. Lauderdale, Florida-based MODCOMP and Technisource
Hardware as well as Fairfax, Virginia-based Signal Analytics 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.
Company Profile:
Based in Billerica, Massachusetts and founded in 1968, CSP Inc. (NASDAQ: CSPI) and its
subsidiaries develop and market IT integration solutions for complex IT environments as
well as messaging and image processing software and high-performance cluster computer
systems. The company’s subsidiaries include MODCOMP, Inc., Scanalytics, Inc., and the
CSPI MultiComputer Division. MODCOMP, Inc. is a multinational business that develops and
markets IT integration solutions and provides network management, storage systems and
security consulting services along with the best-of-breed hardware and software products
from industry leading suppliers. Scanalytics specializes in the development and marketing
of highly sophisticated image-capture and analysis software products used by researchers
in the biological and physical sciences. The MultiComputer Division supplies very dense
cluster computer systems with powerful real-time I/O capabilities that require minimum
physical space or power for a broad array of defense applications, including software
defined radio, radar, sonar and surveillance signal processing.
CEOCFOinterviews: Mr.
Lupinetti, will you tell us about your background with CSP and how it has changed under
your leadership?
Mr. Lupinetti: "I joined CSPI a little over eight years
ago, and the company was about $19 million in revenue and focused exclusively on the
defense business with a little diversity into the life sciences. After I joined the
company as CEO and president, we made several acquisitions and the company has grown both
organically and through acquisition to $52.8 million for the fiscal year 2004. CSPI is now
focused not only on our defense business, but we have a very large business focused on
integration solutions for complex IT environments where we provide consulting services for
network management, storage systems and network security along with hardware and software
from leading industry suppliers. The company has changed dramatically over the last eight
years."
CEOCFO interviews: Are
there industries you focus on in addition to defense?
Mr. Lupinetti: "The high performance computers that we
build are very rugged. They are ideal for defense applications and particularly radar,
sonar and surveillance signal processing. That business goes back throughout the history
of the company. The bigger business from a revenue perspective is actually our integration
solutions business that focuses on all commercial markets. That business is focused on
consulting services along with the best- of-breed hardware and software that we deliver
with our services. This allows us to address almost all commercial markets. We have a
small division called Scanalytics, which is focused entirely on the life sciences and
biotechnology. We are in many different markets."
CEOCFOinterviews: What
type of project would somebody come to you for?
Mr. Lupinetti: "If it was in the storage area for
example, typical customers have grown their IT environment over a number of years using
different storage manufacturers. As each leading vendor comes out with new products, they
would add their storage products and software and then they find themselves in a situation
where they have very diverse products in their IT environment, which leads to complexity.
It is really driven by a multitude of different vendor’s products in the same
environment. It is hard for a single client to keep abreast of all the technical nuances
associated with many different vendors whereas we do it every day. We can go in when they
are ready for an upgrade and look at their environment and propose a solution that will
probably still incorporate multiple vendors but we will send our technical people in to
install the new hardware and make sure that it all works together. That is where our added
value comes in."
CEOCFOinterviews: How do
you reach potential clients?
Mr. Lupinetti: "We have a direct sales force that sells
directly to large customers. Our largest customer is a company called E-PLUS in Dusseldorf
Germany, which is one of the largest wireless service providers in Germany. We do millions
of dollars of revenue per year with them and they have been a long-term client. We reached
them with our direct sales force. In the defense business we sell to large defense
contractors. We rarely, if ever, sell directly to the Navy, Air Force or Army. We sell to
companies like Lockheed Martin (NYSE: LMT), who then incorporate our high performance
cluster computers into a radar or sonar solution that they sell to the defense department
who then puts them on the boats and planes."
CEOCFOinterviews: You
have started to focus globally; how is that going for you?
Mr. Lupinetti: "We have a very good global presence.
Last year we did 46% of our business overseas, primarily in Germany, U.K. and Japan and
54% in the U.S. so we have a very balanced amount of business around the world."
CEOCFOinterviews: Are
you satisfied with that ratio?
Mr. Lupinetti: "When we bought MODCOMP back in 1997,
they had subsidiaries in the U.K., Germany, France and resellers in other multinational
markets, so European business has been a legacy for us. On defense business, we have a
good presence in Japan, primarily because you go where the money is and the Japanese
Defense Agency is building up their capabilities with high-performance cluster computers
like our FastCluster multicomputers. We have been there for many years as well."
CEOCFO interviews: You
have had a 62% increase in sales for fiscal 2004; what are you doing right and how do you
continue?
Mr. Lupinetti: "The basic reasons for the 62% increase
in sales is that going into 2004, after a few rough years that every one experienced
during the recession after the tech bubble burst in 2000, we had a competitive strategy in
terms of our products and marketing. We executed very well against that strategy. In
addition, we have a senior managing team and growing markets. Those are the four critical
success factors of 2004. Part of our growth strategy is to grow through acquisitions, and
one of the acquisitions that we acquired in 2003, also contributed to our growth. If we
compare our 2004 results to 2003, we had both organic as well as growth from the
acquisition."
CEOCFOinterviews: Do you
see continued partnerships and acquisitions in the future?
Mr. Lupinetti: "Yes, we are always evaluating
acquisitions as one of our principle growth strategies and we look for companies that are
profitable and compatible with us."
CEOCFOinterviews: Is
there much competition in your market segment?
Mr. Lupinetti: "There is enormous competition
everywhere. Since the tech bubble burst, the competition has increased dramatically. In
the defense business we compete primarily with a company called Mercury Computer Systems
as well as SKY Computers, IBM and smaller companies like DY4 and Synergy. We win in the
defense market primarily because we have made a total commitment to building
architecturally superior systems using open systems technologies. We only offer systems
with the LINUX and VxWorks operating systems, which are open systems and industry
standards. Our competitors are still offering their proprietary operating systems, so that
is how we differentiate ourselves in the defense market. We have also added ruggedness to
these computers because defense applications are very demanding. For example, our
computers are used in UAVs with open cockpits; they are in a tough environment that
requires the ruggedness that we have built into our computers. In the integration solution
marketplace, the main difference for us is that we have very strong reference accounts and
we have focused on building our technical expertise. That is how you add value and
differentiate yourself from the next supplier with similar services. Our reference-able
accounts make a big difference in a sale; we have proven ourselves in the market and have
demonstrated that we can deal with the complexity."
CEOCFOinterviews: On the
commercial side, you are selling services and systems to companies, is there follow-up on
that?
Mr. Lupinetti: "The revenue model includes consulting
services and hardware and software from leading suppliers. The service business is
significant in terms of our $52 million. We have services in excess of $40 million. Some
of it is recurring and some of it is projects. It is a combination of services. We have
maintenance contracts primary from our legacy customers that are using process control
computers that MODCOMP sold to them over the last thirty years. Those are contracts that
have recurring monthly revenue. The services related to the integration solutions, are
generally project based. There is another service element where we actually do outsourcing
in the integration business when for example we take over a customer’s network
security department; these are generally large customers. We have people on-site doing
their network management for them on a multi-year contract."
CEOCFOinterviews: Is
outsourcing a growing area for you?
Mr. Lupinetti: "Yes it is growing. Large companies find
it beneficial to turn their security and storage departments over to people like us who
have the expertise and can keep current. It is such a dynamic environment that keeping up
with technology for security for example, is a full-time job."
CEOCFOinterviews: What
is ahead for CSPI?
Mr. Lupinetti: "We look at the market and see growth
opportunities. We continue to focus on organic growth. We spend our R&D money to
develop new products. We keep a continuous flow of new products coming down the pike to
our customers, which helps us maintain a close relationship with them. We will grow
organically in our defense and integration businesses. In addition, we will continue to
evaluate acquisitions. We believe that this strategy could drive us to $100 million in
five years and we would like to grow our earnings at 10% a year over that period-of-time.
Those are the goals we have set for ourselves."
CEOCFOinterviews: Why
should potential investors be looking at CSPI and what should they know that maybe they
don’t realize when they first look at the company.
Mr. Lupinetti: "The investors that we have, place their
confidence in us because they see a small, diversified company that is not dependent on
one market or product line. We have a stable senior management team and we have a strong
balance sheet. That is what they look at. We have no debt and over $12 million in cash. We
have been in this situation for many years. We have a track record of strong financial
management along with the ability to take risks, go into new markets and buy other
companies. It is a well-balanced, diversified small company. We are global and we have no
dependence on one geographic market. Those are primarily the things that may not come out
when you initially look at the company."
CEOCFOinterviews: In
closing, what is your main focus as CEO?
Mr. Lupinetti: "I am focused on our growth strategy. I
have confidence that we have a competitive strategy and that if we execute properly, we
will achieve our goals. I am constantly looking at the management team to make sure we
have the right people in the right place and I am continually looking for areas to grow
shareholder value."
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