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June 25, 2010 Issue

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CSP Inc. Is A Diversified Multinational Leading Supplier Of Cutting Edge IT Integration Solutions And Rugged High Performance Cluster Computer Systems, Focused On Its Growth Strategy

Company Profile:

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 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, 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 Germany.

wpe3B.jpg (7844 bytes)Alexander R. Lupinetti
Chairman, President, and CEO

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, Lupinetti’s achievements include the implementation of a new strategic plan that increased revenues from approximately $19 million in fiscal 1997 to more than $83 million in fiscal 2009. Under Lupinetti’s leadership, CSP Inc. acquired Ft. Lauderdale, Florida-based Modcomp Inc., Technisource Hardware and R2 Technologies 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.

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published: June 25, 2010

Business Software & Services

CSP, Inc.
43 Manning Road
Billerica, MA 01821-3901
Phone: 978-663-7598

CEOCFO: Mr. Lupinetti, what is your current vision for CSP?

Mr. Lupinetti: “We are a strategically focused, diversified, multinational, technology company. We have been in business for forty years and we envision a bright future as a leading supplier of cutting-edge IT integration solutions and rugged high performance cluster computer systems.”


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 laymen’s terms, we build very high performance computers that take very little space. They are used on airplanes and boats to do radar, sonar and intelligence, surveillance and reconnaissance (ISR) 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 integration solutions for complex IT environments, including storage and server, network security, unified communications and managed and consulting services.”


CEOCFO: Is it the type of components or software that enables you to do that?

Mr. Lupinetti: “It is a combination. In our system segment, 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 solutions for complex IT environments  including storage and servers, network security, unified communications and managed and consulting services.  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), 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 virtualization software from companies like VMware, Inc. (NYSE-VMW) along with our consulting services for the installation.

Virtualization allows our customer to consolidate many servers regardless of what operating systems they are running. On one large server, they can run Microsoft Windows applications along with Unix applications and Linux applications; saving space, power and complexity. These are the type of services that add value to the products that we resell and integrate.”


CEOCFO: Who is using your products and services in both segments?

Mr. Lupinetti: “In the systems segment we sell exclusively to the major prime contractors that sell to the Defense Department like Raytheon Co (NYSE:RTN) and Lockheed Martin Corp (NYSE: LMT). In the integration segment we sell to a wide range of vertical industries. One area where we are having particular success is selling to several hosting companies, that in some cases, are seeing strong demand as a result of the rapid growth of social networking sites.”

CEOCFO: Do you see growth in these segments continuing?

Mr. Lupinetti: “Yes we do. Because of the global war on terror and the wars in Afghanistan and Iraq, there is certainly reason to believe that the Defense Department will continue to invest in strategic programs like ISR to maintain our military leadership. The area we compete in is called “COTS” or the “Commercial off the Shelf” part of the Defense Electronics Market and it has been sized at approximately $3 billion, which provides significant opportunity for us to grow in the future.


In spite of the current recession, we also see continued growth in our integration segment because the global IT market has been sized at $1.8 trillion and is still growing rapidly in certain areas like social networking and unified communications. We are well positioned to take advantage of these opportunities because of the investments we have made like our recent acquisition of R2 Technologies.”


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 in the systems segment has changed significantly over the last few 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 (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. In the integration segment we also compete with much larger companies like CDW and Dimension Data (LSE: DDT).”


CEOCFO: Why do customers choose CSP?

Mr. Lupinetti: “Foremost because we have technically superior products. 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 the 3000 SERIES, has 10 Gigabit Ethernet capability, which is cutting edge technology and gives our customers the best network throughput capability in the market today. They are able to integrate our systems with the other systems and applications that may be running on the platform like a boat or a plane using the 10 Gigabit Ethernet feature.

In our integration segment, customers chose our Modcomp subsidiary because we have superb technical expertise and agility to solve their complex problems like network security, unified communications and high volume procurements.”


CEOCFO: You mentioned using your size to your advantage; how do you do that?

Mr. Lupinetti: “When we win major contracts like our recent Raytheon contract, 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, when we have the opportunity to demonstrate our ability to work shoulder to shoulder with our customers, we use this as a lever to differentiate ourselves in the marketplace. Similarly in our integration segment, we use our size to demonstrate our agility and ability to innovate in the procurement process to meet the unique requirements of our high volume commercial customers like NTT Verio.”


CEOCFO: Who is using your services in the systems integration segment and how do you get them to use more?

Mr. Lupinetti: “This is a predominantly commercial business. We sell to a wide range of vertical industries. Our largest customers are NTT Verio, Rackspace and Vodaphone. We win these type of marquee customers because of our reputation for outstanding technical expertise and agility, long-term standing in the marketplace and our strong financial position and balance sheet. We offer cutting edge servers and storage, network security, unified communication and managed and consulting services. What we are selling is our technical expertise, for example, we recently sold a comprehensive unified communication architecture for a new luxury hotel that included the VOIP telephones, wireless network, network security, digital medial signage and more. This multi-million dollar project was the direct result of the investment we made to acquire R2 Technologies.”


CEOCFO: Are there geographic areas internationally that you would like to be more involved in?

Mr. Lupinetti: “We are fairly balanced already geographically. Last year we did 64% of our business in the US and 36% internationally, which I think is a good mix for a company our size. Our focus 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 technical people you need?

Mr. Lupinetti: “We have been in business in both our segments for 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 we compliment them by recruiting young people 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 is key to our future growth, so we leverage our reputation and stability to hire the best people”


CEOCFO: Do you see acquisitions as part of your strategy going forward?

Mr. Lupinetti: “We have a two-pronged growth strategy that includes growing both organically and through acquisitions. Internally we fund new product development to grow organically and then we use our cash to grow through acquisitions.  Over my tenure, we have made several acquisitions, like Modcomp. Modcomp was a $75 million business last year. It works out well for us to have a commercial business that is not subject to the lumpy nature of our defense business. We continue to look for acquisition candidates that would complement and be compatible with one of our two businesses. We look for profitable companies that will be a good cultural fit and that would be accretive immediately.”


CEOCFO: What is your scenario for the next few years?

Mr. Lupinetti: “In the next few years, I see us continuing to grow both organically and through acquisition. The marketplace for integration solutions is very large, as the worldwide IT market approaches $1.8 trillion there is excellent opportunity for us to continue to grow. 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 war on terror, I think that the opportunities will also continue to grow, albeit they will be uneven. 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 through our salesmen working with our customers to develop new programs or refresh existing programs for the DoD On the integration side, it is done the old fashioned way with our sales force knocking on doors and fighting the competition to win new business.”


CEOCFO: You grew your top line last year in spite of the recession and the 1st half of this year has been solid, so it must be working!

Mr. Lupinetti: “The business models that we have developed for both of our segments are working well, in spite of the recession. The investments that we have made in new technology are enabling us to win strategic ISR programs like E2D and the M&A investments we have made are driving our commercial growth. 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 doesn’t 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 $12 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 and 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 company.”


CEOCFO: As CEO, what occupies your attention most on a day-by-day basis?

Mr. Lupinetti: “My primary focus is our growth strategy. I am confident that we have a competitive strategy that when executed properly will achieve our goals. I am always looking at the management team to make sure that we have the right people in the right places and I am continually looking for areas to grow our shareholder value. That is what occupies most of my time.”


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 grow.”


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“We are a strategically focused, diversified multinational, technology company. We have been in business for forty years and we envision a bright future as a leading supplier of cutting-edge IT integration solutions and rugged high performance cluster computer systems.” - Alexander R. Lupinetti

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