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System76

by Eric Peterson on December 11, 2018, 03:40 pm MST

www.system76.com

Denver

Founded: 2005

Privately owned

Employees: 27

Industry: Electronics & Aerospace

Products: Linux computers

Founder and CEO Carl Richell has brought production of desktop systems in-house, making System76 the only computer manufacturer in the U.S.

In the 1990s, Richell cut his teeth in technology consulting straight out of high school for Lucent Technologies. Those were the halcyon dot-com days, and Richell took two years off in the wake of the early 2000s bust to travel and spend his savings. "When I ran out of money, I started consulting again," he says.

But he'd long been a fan of open-source software, which led him to soon go on his own with System76. "I started with $1,500 and in my basement," he says of his company's humble beginnings.

"Open source changed everything," says Richell. Programmers once needed money for compilers and other tools of the trade, but not after the dawn of open-source code in the 1990s. "It's all entirely free, thanks to open source."

Richell's personal experience made him something of an evangelist for Linux and other open-source technology. "All of that fed into a desire to make open source more accessible and promote open source," he says. "Linux wasn't well-represented by major hardware companies."

Initially, System76 worked with Intel's "whitebook" program to offer Linux-based computers. "We had the opportunity to build a brand and a company," says Richell of the company's start with Intel.

The hitch? "We didn't have any control over the design. They would create designs that we would purchase," says Richell. "We wanted to design our own products."

After Intel shelved the program in 2008, System76 became an original equipment manufacturer, outsourcing production largely to partners in China for a catalog of Linux-optimized computers. The company also developed its own Linux-based operating system, Pop!_OS, touted as a good fit for factory automation.

The company grew at an annual clip of 25 to 50 percent with this model, but Richell sought to take another leap by bringing manufacturing in-house. That meant adapting to a global supply chain built around the needs of the tech giants. "[The computer industry] is dominated by a few massive companies and the entire supply chain is built around those companies," says Richell. "We started thinking, 'It can't be this hard to manufacture a computer.'"

Regardless, moving production of its desktops from contract manufacturers to the company's new facility in Denver was no easy feat. In 2015, System76 embarked on two years of R&D to conceive both a product and a manufacturing model. A lot of it came down to hitting the numbers necessary to interface with the monolithic supply chain.

"How much less colorful is our life because of these massive supply chains that don't allow for creativity?" muses Richell. "I think something happened in the last decade where people got sick of being told they can't make things."

In 2018, the company moved from downtown Denver to an industrial location on the northeast side of the city and invested $1.7 million in lasers, brakes, compressors, curing ovens, and other necessities go into computer manufacturing.

The first System76 product made in Denver is the decidedly customizable Thelio, a high-performance desktop computer that starts at $1,099. After iterating with acrylic prototypes, System76's engineers moved to metal designs in mid-2018 and came up with a space-saving chassis for the desktops. Processors and other components are sourced from suppliers like AMD and NVIDIA.

"We're a bunch of software guys cutting metal now," says Richell. "We're doing the cutting, bending, riveting, finishing -- everything is being done in-house."

That decision was one of economic necessity. "The prices didn't match anything that was possible for the computer industry," says Richell of quotes from local job shops. He says System76 is able to make metal parts in-house for about $50, but bids came in as high as $180.

After spending about eight months of construction and installation, System76 turned on the lights at the 22,00-square-foot computer factory in November 2018; the first shipments are going out in time for the holidays. "We had to make Christmas," says Richell.

With four people working in production, the initial volume is "at least 100 systems a week," says Richell.

The company continues to sell lines of its laptops, servers, and mini desktops made by original design manufacturers (ODMs), but Richell's hope is that more manufacturing can be brought in-house in the future.

"It certainly changes our complexion pretty substantially," he says of the pivot. "Now we're able to control our destiny in ways we've never been able to before. . . . We're able to make design decisions based on what our customers are requesting.

With offshore manufacturers, an iteration in design might take four months; System76 can tweak a product in "a week or even days," says Richell. "There's no reason we can't change the CAD and cut a different piece of metal."

Challenges: Ironing out the kinks in the company's new manufacturing processes. "The first thing would be sorting out production," says Richell.

Adapting to a new timetable has also proven challenging for System76; software moves notably faster than manufacturing. "The most challenging thing is learning the speed industrial companies operate at," says Richell. "It's much, much slower than what we're used to."

It took more than a year to find a suitable industrial space in Denver, and the lead times for equipment often stretched well beyond initial estimates. The end result was the first shipments going out in late 2018 instead of late 2017. "Now we're in production," says Richell. "We're the only U.S. computer manufacturer."

Opportunities: The laptop is the next target for System76's manufacturing operation. Richell anticipates a 2020 launch. "We're doing desktops first because manufacturing is easier," he says. "A big opportunity in front of us is leveraging what we learn in manufacturing desktops to go into laptops." The laptop market "is much larger" than that for desktops, he adds.

Needs: "What does every company need?" says Richell. "A massive amount of exposure. We've been doing interviews and talking about this for years now. Now it's here."

System76 isn't dependent on outside capital and has consistently financed its own growth. "It's the right amount of growth to fund our investments," says Richell. "We're not betting the company on it [the pivot to manufacturing]."

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