HPCwire: Cray Reports Profit in Third Quarter

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November 03, 2008

Cray Reports Profit in Third Quarter

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SEATTLE, Nov. 3 -- Global supercomputer leader Cray Inc. today announced financial results for the third quarter ended September 30, 2008. Revenue for the quarter was $54.6 million compared to $55.0 million in the prior year period. The company reported net income for the quarter of $5.0 million or $0.15 per share compared to net income of $5.1 million or $0.16 per share in the third quarter of 2007.

Total gross margin for the third quarter was 51.2 percent compared to 40.3 percent in the third quarter of 2007. Product margin for the third quarter was 54.6 percent compared to 40.1 percent in the prior year period and benefited from product mix and favorable contract adjustments. Service margin for the third quarter was 43.4 percent compared to 41.0 percent in the prior year period.

Operating expenses for the third quarter were $22.3 million compared to $17.8 million in the prior year period. As in recent quarters, third quarter 2008 research and development (R&D) expense increased over the prior year period. Included in third quarter 2008 results was $0.8 million related to net stock compensation.

For the nine month period ended September 30, 2008, Cray reported total revenue of $127.5 million compared to $128.7 million in the prior year period. Due primarily to the previously mentioned increase in R&D expense, total operating expenses increased year-over-year to $66.3 million for the nine month period ending September 30, 2008, compared to $53.1 million in the prior year period. Net loss was ($10.7 million) or ($0.33) per share for the nine months ended September 30, 2008 compared to a net loss of ($2.1 million) or ($0.07) per share for the nine month period ended September 30, 2007.

Cash and short-term investment balances as of September 30, 2008 were $103.6 million compared to $115.0 million as of June 30, 2008.

"We are very pleased to report a profitable quarter," said Peter Ungaro, Cray president and CEO. "The third quarter benefited from strong performance across all of our product lines, as well as growing traction in our custom engineering business."

Ungaro added, "We are positioned for a strong 2008. During the third quarter we achieved a major milestone by successfully delivering all of the cabinets for the petaflops system to Oak Ridge National Laboratory, ahead of schedule, and we have now shifted our focus to completing installation and achieving system acceptance. Also in the third quarter, we announced the Cray CX1 personal supercomputer in partnership with Microsoft and Intel, which is designed to deliver unprecedented performance and productivity in an affordable and adaptive system, featuring a choice of Microsoft Windows HPC Server 2008 or Linux. With continued focus on execution and progress on our new strategic initiatives, we have recently more than doubled our addressable market, creating new opportunities for growth and profitability. In October we retired just over half of our $80 million of outstanding convertible notes, reducing our debt at a discount -- a move that is positive for both our customers and shareholders."

Outlook

A wide range of potential outcomes for 2008 remains. The company's 2008 results are highly dependent on the acceptance of the petaflops (1,000 trillion floating point operations per second) supercomputer at Oak Ridge National Laboratory (ORNL). If the acceptance occurs in late 2008, then the company expects to have revenue for the year in the range of $265 million and to be profitable from operations. If the Oak Ridge system is not accepted this year, then 2008 revenue would be adversely impacted by about $100 million and the company would have a net loss for the year.

At the $265 million revenue level, the company expects 2008 overall gross margin to be up from the prior year to about 37 percent and 2008 operating expenses to be approximately $92 million, including $51 million in net R&D expense. The 2008 operating expense estimate includes a significant increase for commissions and other variable compensation resulting from anticipated fourth quarter revenue growth.

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