Interview with: Alexander R. Lupinetti, Chairman, President and CEO - featuring: their best of breed IT solutions, systems integration services, and high-performance computer systems.


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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

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Business Software & Services

CSP, Inc.

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

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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, Lupinetti’s 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 Lupinetti’s 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.

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 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 Germany.

Mr. Lupinetti, what is your current vision for CSP?
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 laymen’s 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 environments.”

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 integrate.”

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 applications.”

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 with.”

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 technical industry?
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 going forward?
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 business.”

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 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 $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 company.”

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, 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.” - Alexander R. Lupinetti does not purchase or make
recommendation on stocks based on the interviews published.