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September 30, 2005
Long-time HPC industry executive James E. Rottsolk may be winding down his days at Cray Inc. -- the co-founder relinquished his title as CEO in August -- but his enthusiasm for the field of high performance computing has not waned even a megabyte after decades dedicated to the cause.
"I'm committed to the company full-time till the end of the year and I'm still on the board," said an upbeat Rottsolk, from his water view office in Seattle. Instead of being a man counting his days, it is immediately clear Rottsolk is focusing on things that must take place long after he has -- even if it feels reluctantly -- eased into his next role as a man who finally has time to pursue more fully his interests in sailing and reading as well as being more available for his young son's soccer games.
At the top of Rottsolk's current list is helping Cray return to profitability. A major step toward that goal was taken in August when Rottsolk smoothened the path for Peter J. Ungaro -- who was wooed from IBM to join the company as vice president of sales and marketing in August 2003 and became president in March 2005 - to succeed him by taking over chief executive duties.
While Rottsolk quietly acknowledges his stepping down as CEO "probably happened faster than most people thought," he seems resigned that it should be perceived as a step forward for the supercomputer maker that has fallen on challenging times in recent years.
With Ungaro securely ensconced in his new role, Rottsolk said he is freed to help ingrain procedures to make the company run more efficiently -- again, because of the necessity for returning to profitability. He admits, however, this is a major undertaking as Cray has several "very serious" (read: monetarily intensive) development projects underway. To some observers, 2003 -- a year when Cray recorded a $21 million profit -- now seems ages ago.
"We've invested a lot of time, resources and funds into putting a set of new products in the market," Rottsolk said. "While these moves are a necessity, they do have a negative impact on our operating results."
Obviously, there remain high hopes Cray can return to the glory days of 2002 when there were profits every quarter and overall revenue was up 12 percent. Rottsolk credits hiring Brian C. Henry as executive vice president and chief financial officer last May as another step that the company is rightfully back on the road to improved financial status. Any visible proof is encouraging as Henry came on board just as Cray was battling two class action lawsuits alleging the company beguiled investors, auditor Deloitte & Touche had resigned and Nasdaq was threatening to de-list the company due to lack of compliance with Sarbanes-Oxley guidelines.
"We are proceeding well," Rottsolk said. "For the second half [of its fiscal year], we have a good shot at vastly improving our operating results." Will this mean a return to profitability? "That remains to be seen," he answered. "By 2006, certainly. But first, we need to stop [the need for] bailing."
As Rottsolk the sailor's prized vessel may have taken on a tad much water, this observer can't help but envision Cray as having the potential talents of a habitual phoenix. How will the company once again rise from the fires ignited by offshore competition, mismanagement, stingy governmental budgets and a downturned economy?
The challenge is steepened by the reality that it is particularly hard to innovate technology in what Rottsolk repeatedly calls "leadership class systems." It's because there is "much more risk than in normal business," he added.
But the relentless rollercoaster ride has not disrupted his equanimity. Rottsolk remains confident because he has been through scenarios like this before. He recalled the challenge of when start-up Tera Computer Co., a company he started, bought Cray Research, which had become a division of Silicon Graphics Inc. after a cheap (by HPC standards: $35 million) acquisition in 2000, and turned the merger into Cray Inc. After all, powerful SGI had flat-out failed to leverage its Cray Research buy -- and many market watchers were in agreement that the supercomputer market had seen its halcyon days.
Rottsolk said what was required then still holds true today. "You have to suck it up," he said. "There were losses for a time; you have to cut back, but stay focused on what must be done."
According to HPC industry watcher Charles King, principal analyst for Pund-IT Inc., "Cray is an interesting case of how good -- even to say great -- engineering can be undermined by the evolution of a market. The road the IT industry has traveled is lined with the rusting hulls of great computing technology that has missed the market."
Missing the market is what initially led to the misguided marriage with SGI, he said. "Each company had that same problem," King added. "The Cray [Research]-SGI value proposition was intriguing, but it was never realized." As with most divorces, it set back Cray, and the company still is reeling to some degree.
Yet in 2003, Cray had what Rottsolk characterized as "a nice year," thanks to the debut of its X1 offering. Current product developments should either enable the phoenix to fly or let the U.S.S. Cray enjoy some smooth sailing.
What is different this time, Rottsolk said, is he is not being so relentless on his engineering resources. Last time, he added, "I asked them to take on a truly Herculean effort, taking on a custom design." Rottsolk also underestimated the impact vendor-supplied components would have on Cray's overall ability to deliver its product on time. "I asked them [the engineers] to do too much," he added.
This time around it would seem Cray's most serious handicap is operating sans long-time chief technology officer Steve Scott, the wizard behind Cray's T3E and X1 offerings, who unceremoniously exited the company this past summer
According to Rottsolk, Scott's departure "has had no impact on current development." He acknowledges that "sometimes it is just time to move on" and Scott's leaving provides the opportunity to do some things differently. "HPC is not the easiest business," Rottsolk said. "Yet it's the complexity of the business that drives me."
Unfortunately, sometimes the drive has been more start-and-stop than a freeway cruise. After 2000, a year of "momentous progress" said Rottsolk at the time, in 2001 the company suffered what he now categorized as "a false start" when he hired Michael P. Haydock as president and CEO. The ex-IBMer's stay was short; he resigned in March 2002, euphemistically "due to differences with the board of directors in how to restore the company to long-term industry leadership." This forced Rottsolk to regain president and CEO duties, which he held until Ungaro's ascension.
The misstep definitely was softened with the high profile hiring of Ungaro. While Rottsolk acknowledged that it is hard for an outsider to walk into Cray's supercomputing business and gain immediate and significant credibility, Ungaro undeniably has proven worthy.
"Pete is an all-star," said Rottsolk. Coming from his tenure as vice president of worldwide deep computing sales at IBM, the key was Ungaro already knew the intricacies of the HPC business. Ungaro since has quickly proved himself by advancing Cray's cause "faster than expected," Rottsolk added.
It's no easy task. "This is faster-paced technology than it used to be," Rottsolk said. "If you want to be at the top of the pinnacle - and that's where Cray wants to be - you have to sell leadership-class computers." And by that, he means not ones composed solely of commodity hardware.
The key word is "sell." Above and beyond all his obvious polish, charm and connections, Ungaro is a salesman supreme. After all, selling supercomputers is a lot like being a Lamborghini dealer. While you may be ensconced in the midst of an auto mall dominated by masses of Chevys, Hyundais, Kias and Fords selling millions of units, you only move a few exotic machines a year -- and they require beckoning buyers with beaucoup budgets. Further exacerbating the exercise: being subjected to other people's budgets - such as government-funded agencies -- can be brutal, especially on a struggling company's impatient bottom line.
Take Cray's long-standing relationship with Oak Ridge National Laboratory, for example. While Rottsolk acknowledges that ORNL "has been a great customer," he quickly added, "but I sure hoped they would have moved a little faster." There's another Cray machine at the Pittsburgh Supercomputer Center, which Rottsolk said he would like to see expanded - again - funding be willing. But when?
The National Science Foundation holds the purse to a lot of what Cray would like for its allowance. "The NSF clearly recognizes the need for HPC," Rottsolk said. "But I'm disappointed, in general, by the government's inability to commit the funds." The reality is all the more perplexing because government studies continue to point out that HPC is critical to the health of the nation. The impacts of hurricanes Katrina and Rita provide further emphasis.
Funding issues -- more specifically, the lack of funding -- come with the territory, though, especially when you're dealing with customers from the political, governmental and laboratory markets. This is why a large part of Cray's plan to regain profitability is hinged upon making deeper inroads into the commercial market. Yet to do so, these customers need to understand - even if it requires persuasively explaining it to them - that a certain amount of innovation is required to produce supercomputers that truly make a difference, according to Rottsolk.
"There is only so far you can go with off-the-shelf microprocessors," he said. "It's not feasible to think you can just crank the clock' a little more and go to dual processors. More creativity is needed to keep on a Moore's Law path." HPC will not move ahead by shifting the onus to commodity components while relying on marketing moxie to deliver the differentiation.
Tomorrow's supercomputers need a creative architecture, one that is a mixture of the latest hardware and software technology, according to Rottsolk. Cray's challenge: deliver enough differentiation to gain needed margins while maintaining sufficient cash in its coffers to fund significant, ongoing research and development. "After all, $100 million deals don't yield 50 percent margins," he said. "It can be difficult to make people understand they must pay for the value given."
Cray traveling that differentiated route is akin to choosing the "double diamond" trail, when the majority of supercomputer rivals have opted for the "bunny hill" of composition by components.
"The drive is toward cluster solutions," said analyst King. "Staying on its current course puts Cray between a rock and a hard place." Going forward, King categorized Cray as "a boutique firm" despite there being no doubt it is a recognized HPC leader. He added he doesn't see how the company can compete in the cluster space, but Cray will always have a place in the high-end machines. However, in that rarified category, King foremost praised IBM and its Blue Gene as today's poster child.
Even so, Rottsolk readily admits, "Still today, it's a privilege to be in this business, to work with people who are leaders in their fields and companies." New advances in structural analysis and fluid dynamics, in particular, propel his enthusiasm for going forward.
One thing is for sure: to regain that aforementioned pinnacle, Cray will not be making any acquisitions, at least in the near future. It would be foolhardy, Rottsolk said, as the company's No. 1 priority needs to be creating -- and maintaining -- a stable operating position. If he knew now what he needed to know then, Rottsolk admitted he probably would not have proceeded with Cray's dubious early 2004 acquisition of Linux-based supercomputer start-up OctigaBay Systems Corp. The $115 million deal "was a lot to swallow," he added, despite Cray's obvious and adroit engineering prowess. Nevertheless, the acquired technology serves as a key part for Cray's next generation of supercomputers, with increased reliance on Opteron processors from Advanced Micro Devices Inc., which are also at the heart of Cray's Red Storm offering.
The introduction of Black Widow, currently Cray's largest single development project, now has been pushed back a year to 2007, even with the $17 million secured recently from the U.S. government to help fuel development. There will also be follow-ons to its X1 and XT3 offerings, he said. It is certain Cray needs to act with celerity to take full advantage of the situation.
"Cray is a bunch of very bright engineers with great technology," said Pund-IT's King. "It's just that its customer base is getting smaller each year. I wish I could be more optimistic."
On the subject of the probability for sunny skies ahead, "I remain the eternal optimist," Rottsolk said. "I firmly believe we are only on the threshold of possibilities for HPC." After the slightest pause, he added with a mild chuckle, "I sure hope I'm not the only one who thinks that."
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