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November 9, 2012

Cray to Buy Appro for $25 Million

Richard L. Brandt

Cray CEO fills in Wall Street stock analysts during an early morning earnings phone call

Wall Street seemed pretty happy with Cray’s announcement this morning that it would buy Appro International, a 20-year-old HPC cluster vendor. After nearly two months of a steady decline, Cray’s stock price jumped 10 percent today on the news. At one point, shares were up 13 percent.

Cray is paying about $25 million for Appro, and will get at least $3.5 million in working capital, which is the sum of the money it’s owed from customers, plus the value of its inventory, minus the amount of money it owes its suppliers. Cray CEO Peter Ungaro said he expects Appro to contribute $60 million in revenue to the top line next year. Cray’s total revenue this year should come in at about $450 million.

The acquisition has not been closed yet. It first it has to be approved by the government, in order to ensure it doesn’t create a monopoly in the business. Ungaro noted that Appro is “the number three vendor across the top 100 supercomputers in the world, after IBM and us.” There will probably not be any problems with the deal, however, since IBM remains a strong competitor. Ungaro expects the acquisition to be completed within a few days to a couple weeks.

Still, it’s hard to say how much of that stock jump was the result of this morning’s announcement. Ungaro revealed details of the deal in an 8am EST phone call with Wall Street stock analysts, when he announced Cray’s third quarter financial results, which were generally upbeat.

Cray had a net loss of $5.2 million for the three-month period ended Sept. 30, but Wall Street was expecting worse—perhaps three times that loss. Ungaro also noted that Cray has already sold several units of the just-announced XC30 (“Cascade”) supercomputer, and some of them will be shipped by the end of the year, instead of early next year as originally expected. Cray has also delivered its Blue Waters supercomputer to the University of Illinois and Titan to Oak Ridge National Lab. Once those customers approve the computers—probably before the end of the year—Cray will collect another $180 million.

The Appro deal certainly didn’t put a damper on Wall Street’s enthusiasm. The most important element to this, according to Ungaro, is that it gives his company “one of the most advanced industry clusters in the world.” Cray gets the product line and a bigger sales team from Appro, while Appro gets inroads into overseas markets through Cray.

Appro could also help Cray grow in the big data market, a business that Ungaro said has “transformational potential for our company.” He expects the big data part of Cray’s business to grow 50 to 100 percent next year, although that would  still leave it as a relatively small share of the company’s sales.

One analyst on the earnings call, apparently wondering if the Appro acquisition was really done entirely for strategic reasons, asked why the purchase was made now: “Was the company for sale?” asked Glenn Hanus of Needham & Co.

Ungaro responded that Cray was in a good position to make this kind of investment. “We’ve been on a pretty nice roll lately.” He reiterated that Appro is “a natural fit for us,” adding that “this is a missing part of our puzzle.”

He also noted that Cray had been looking around for a vendor to fill that slot in the portfolio. “We’ve been talking to a number of different companies in this area.” But Appro, he said, “seems to be the best fit from a culture standpoint; how they think about products from an engineering-first perspective, not a marketing-first perspective.”

Cray’s customers seem pleased with the acquisition. Last night and early this morning, Ungaro told some of them about the deal under a nondisclosure agreement. “And I would tell you that they’re pretty excited, along with me. I was pretty happy to hear the response from our customers.”

Besides, Appro was not exactly a stranger to Cray. “As one of the leaders in HPC supercomputing, we’ve known Appro for quite a while as we’ve partnered with them on a couple of solutions. And they have been making waves recently with their rapid growth.” One of those collaborations was in Japan, but he didn’t give any word on whether it resulted in any sales.

The Appro acquisition won’t be the last we hear from the Cray CEO this month. SC12 is coming up next week and the company has plenty of news to trumpet. “You’ve seen some early announcements from us over the past two weeks, which will continue into next week as we show the market more new products than we’ve ever had at any one time, a refresh of nearly our entire product portfolio. It should be an exciting show.”

To hear more about the strategy behind the acquisition, listen to our special edition of HPC Soundbite in which Peter Ungaro explains how Appro’s product set will fit into Cray’s existing portfolio.

About the author

Richard Brandt has been writing about science, technology, business and environmental issues since 1981. Prior to joining Tabor Communications as managing editor of Green Computing Report in October 2012, he spent several years freelancing articles, and writing books about entrepreneurs. He has the distinction of having served as editor-in-chief of Upside magazine for five years, and as a technology correspondent for Business Week magazine for 14 years. Highly regarded as both a public speaker and commentator, Richard has won many awards, including a National Magazine Award, Atlantic Monthly Award, Computer Press Association Awards, and Maggie Awards. He was a Knight Science Journalism Fellow at the Massachusetts Institute of Technology, and a Science Journalism Fellow with the American Association for the Advancement of Science.


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