Information technology is largely dominated by hyped up multi-national public companies. One Australian-owned, privately-held, family operation defies the odds and continues to find new opportunities to develop revenues, profitability and truly end-to-end solutions for its customers. Gerard Norsa got the low-down on the Ipex Information Technology Group of companies from two of its directors, David Cohen and Yoav Schwalb.
Ipex is perhaps one of the Australian IT industry’s best-kept secrets. That is the opinion of David Cohen, a director of the company and one of the true pioneers of the channel in Australia.
Cohen actually founded Com Tech (now Dimension Data) with David Shein prior to becoming involved with the Schwalb family at Ipex in 1986 as employee number six.
While companies such as Dimension Data and Kaz Computer live in search of the limelight, Ipex is an unsung silent achiever that accumulates not-to-be-sneezed-at annual revenues of more than $200 million a year. This puts it well and truly in the same league as its better-known rivals who have been more proactive in terms of drawing attention to itself.
Cohen puts the company’s low profile down to the strong engineering focus among the four directors.
“Ipex is very much a technical company,” Cohen said. “Three of the four directors are engineers and we have never been really into marketing hype. Ipex just goes about its business with an emphasis on supplying quality technology solutions to its customers.”
Current managing director, the media-shy, Joel Schwalb, founded Ipex in 1983 after espying an opportunity to use his engineering expertise to supply clone PCs into the Australian market place.
Schwalb, who is now one of four directors with his sons Yoav and Yaron along with Cohen, was already a successful international businessman who had been selling scientific and military technology to education and government customers.
Back in the early 1980s, Schwalb senior had a very clear vision that the PC had a role to play in the future of science, education and defence. He also discovered that there was a disparity between what was available on the market and the technical requirements of early customers such as CSIRO, Melbourne University and the Australian Institute of Technology.
According to Cohen, that is where his engineering capability and the skills of his company came into play.
“Joel saw that there was a great opportunity to build customised, high quality boxes that satisfied the exact needs of the users,” Cohen said. “It was very quickly apparent that if they were going to have greater degree of control in terms of the technology of the box then they needed to have some involvement in how they were manufactured and what technology was built into them.”
With existing contacts worldwide in the electronics components industry Schwalb joined a global consortium of companies that shared costs of a joint design facility in Santa Clara, California.
The consortium was designing motherboards and other components and then contracting out the manufacturing of them to third parties. During the embryonic stages of the industry, here was an Australian company demonstrating a determination to have leading edge, proprietary technology and hands-on quality control for a rapidly growing range of enterprise buyers.
In the early days, Ipex had a strong reliance and vision of a dealer channel but by 1986 it was also starting to dally in primitive data networks and development of graphics applications as it grew and focused on end-to-end solutions. As it delved deeper into the value-adding model it became clear that if it was to sell technical expertise and professional services on top of its hardware that the only way to do that was to go direct to the market.
In 1988 Ipex made the decision to kill its dealer network.
“We were having massive problems with dealers,” Cohen said. “Some were substituting components which was affecting our image and increasing our support costs. At the end of the day we were trying to drive a solutions focus into the market place but these guys just wanted to be box shifters.
“They were able to get us into customer sites but most of them were really shoe salesmen who suddenly saw a buck in the computer industry. It became apparent to us that most of the dealer market was only interested in commodity trading and did not share the same vision we had of reliability and customer satisfaction.”
There were a few significant early deals that Ipex won that set the course for the future. In the late 1980s it won a deal that was associated with the Telstra District Networks (DisNet) project. Cohen could not recall the exact numbers but estimated it to be “a $10 million project for several thousand PCs”.
He said it was one of the first standard operating environments (SOEs) in the world.
“Telstra was starting to grapple with this idea that you could save a lot of money in the procurement of desktop technologies by putting a lot of responsibility back on the manufacturer,” Cohen said.
“It wanted to standardise so that it didn’t have massive variability across the organisation. This in turn created a manageable support environment and more importantly a means by which it could go back to the supplier and insist that it supply according to the standards and deliver direct to the users.
“It was one of the forerunners in the entire world that established the concept of a SOE and it used the term. This was a profoundly significant concept and Ipex saw the opportunity there.”
By the end of 1988, Ipex had more than 60 employees. In addition to its PC assembly operation it had a successful network and communication infrastructure and integration business called Torren and an application development arm known as Ipex Software Services. It was getting good revenues from all of them and turnover for the group was growing all the time.
Cohen said the main reason that Ipex was able to sustain solid growth levels through the first half of the 1990s was because of its ability to configure PCs to the needs of its customers.
“At that stage, everybody wanted computers for different reasons,” he said. “The big international companies made a certain number of models per year and they pushed those out through their channels. Somewhere in that supply chain the end user wanted customisation of their box.
“Nobody wanted to own this. It was an integration exercise. So we very quickly understood that we also had to own that integration exercise. We understood that there was no way to support our technology unless we became the integrator and the problem resolver for all these challenges that were faced in the marketplace.”
As a result, the Ipex test laboratories were established.
Cohen insists such an initiative was “absolutely unique” in Australia and boasted that “those guys became absolutely world class when it came to compatibility and compliance testing, performance benchmarking and so on”.
It also gave Ipex a market lead on the concept of SOEs.
Meanwhile, because its customer base was evolving into mainly dealing with large national corporates and federal government agencies, it recognised that having branch offices around the country was clearly going to be essential.
Today it operates out of two main centres in Melbourne and Canberra with 11 other locations around the country.
According to Yoav, one of the keys to Ipex’s long-term success has been its ability to re-invent itself every five years. He said that in 1988 it was very much a value-added PC assembler with a couple of nice little subsidiaries in software development as well as networking and communications.
By 1992 Ipex had migrated into a systems integration type of work taking on prime contracting roles including professional services. Up until that stage, it had very much been doing deals supplying hardware and services as a sub-contractor for prominent services organisations such as IBM GSA, EDS and CSC.
Full outsourcing services were available from Ipex by 1997, Schwalb said.
“By then we were a very successful prime contractor, a very successful systems integrator and a very successful professional services organisation,” he said.
These early outsourcing forays where Ipex owned the entire infrastructure and ran it for their clients were generally as a subcontractor on large outsourcing deals under the supervision of multinationals. However, that all changed in 2000 when Ipex became the first Australian company ever to win a major outsourcing contract.
It was then that it secured the contract for the Group 8 cluster of Federal Government agencies, which “completed the evolution into fully-fledged outsourcing services”, Schwalb said.
“Today, Ipex is a total amalgam of all these capabilities and all these strengths with each business function viable in its own right,” he said.
Throughout this time, Ipex has consistently developed and sold its own technology brand. This has all shifted towards a strong relationship with Intel in recent years for its PCs. Cohen said that Ipex is currently supporting more than of 500,000 PCs in the field. It has the capacity to manufacture up to 220,000 PCs per year and has generated total sales “in the millions” of units during the history of its operations.
Today, Ipex’s Melbourne production facility, headquarters, warehousing and data centre covers 25,000sqm. It employs 700 people nationally and has branches in 13 locations.
Cohen estimated that “about 60 per cent” of revenues were derived from product with the remainder from services.
Government and education represented about 50 per cent of business with the other half being done through corporate customers.
“We mainly supply large government and large corporate customers but where we are moving towards in the future now is much more the SME space,” Cohen said. “Customers where there are 100 to 1500 seats is an area that we feel we are today very well equipped to target.”
With its collection products and services that include PCs, servers, network and communications, managed services and outsourcing, Ipex sees significant opportunities in this market segment where demand remains strong.
As a result of its outsourcing venture, it has invested about $25 million to set up the right infrastructure to supply services and has spent about $2.5 million on a billing system. To maximise return from these investments it is looking for smaller customers to bolster the larger contracts.
As it does not have the customer experience with SMEs, Ipex plans to use a combination of acquisition and partnering to move into this space. If past record is any guide, Ipex will also be successful with this latest addition to its operations.
“One thing that we are very proud of is that Ipex has no debt whatsoever,” Schwalb said. “The company’s profitability has always funded our growth. We have always retained the profits within the company. This is our lifeblood and our livelihood and we enjoy what we are doing so the company is very cashed up as a result of that.’
Cohen attributed the long-term success of the company to the fact that it is an Australian company operating in the Australian market place.
“One of the most important things about our success is that we care,” he said.
“We care because we have to care. This is our market, at Ipex, we live and die by every deal that we do in this country no matter how small or how big. We have never been unsuccessful in all the businesses that we do and that sensitivity in the market is the best leverage for our customers.”