APPLICATIONS

Cray has announced financial results for the second quarter ended June 30, 2010. Revenue for the quarter was $28.7 million compared to $62.7 million in the prior year period. The company reported a net loss for the quarter of ($6.6 million) or ($0.19) per share compared to net income of $3.4 million or $0.10 per share in the second quarter of 2009.

Total gross profit margin for the second quarter was 39 percent, compared to 45 percent in the second quarter of 2009. Product margin in the second quarter of 2010 was 50 percent, which was unusually high on low volume. The second quarter 2010 service margin of 34 percent was negatively impacted by a delayed custom engineering contract.

Operating expenses in the second quarter of 2010 declined to $17.6 million compared to $24.0 million in the prior year period. The reduction was primarily driven by lower spending on outside services in research and development (R&D) and the completion of a Defense Advanced Research Projects Agency (DARPA) contract milestone in the second quarter of 2010. The second quarter 2010 results included non-cash items of $2.3 million for depreciation and amortization and $1.3 million related to stock compensation expense.

Driven by the recent introduction of the Cray XE6 supercomputer and consistent with expectations for revenue concentration late in the year, revenue for the six-month period ending June 30, 2010 was $57.1 million compared with $137.2 million in the prior year period. For the first half of the year, total operating expenses were $35.9 million compared to $45.4 million in the prior year period. Net loss was ($18.2 million) or ($0.53) per share for the first half of 2010 compared to a net loss of ($1.5 million) or ($0.04) per share in the prior year period. The first half of 2010 results included non-cash items of $4.5 million for depreciation and amortization and $2.5 million related to stock compensation expense.

As of June 30, 2010, cash balances totaled $85.3 million.

"I remain very excited about our 2010 prospects, led by a number of significant wins and continued strength in custom engineering," said Peter Ungaro, president and CEO of Cray. "We also just achieved a major milestone as we are now shipping our groundbreaking Cray XE6 supercomputers, many to new customers, and are in the midst of one of the largest production ramps in our history. In fact, in a five month period this year, we expect to ship over six-times more compute power than we did in all of 2009, demonstrating our strong competitive position and the advantage of Cray's tightly-integrated architecture. While we still have a lot of work left to do, I'm confident we are on track to deliver a strong year."

Outlook

A wide range of results remains possible for 2010. Many variables may impact our results, but one significant item is the timing of customer acceptances of our supercomputers.

Assuming successful Cray XE6 customer acceptances in 2010 as currently planned, we continue to anticipate revenue in the range of $305 to $325 million for 2010, with the vast majority being recognized in the fourth quarter. Gross margins for 2010 are expected to be in the low to mid-30 percent range. Operating expenses are expected to be lower in 2010 than in 2009, driven primarily by lower outside services and higher anticipated R&D co-funding credits. Based on this outlook, we expect to be profitable for 2010.

We expect to use cash in 2010, with a decline in the third quarter as inventory continues to build to support the Cray XE6 product release.

For 2011, Cray expects its revenue to continue to grow and to be profitable, although actual results for any future period are subject to large fluctuations given the nature of Cray's business.

Recent Highlights

--In July, Cray announced it had begun shipping multi-cabinet Cray XE6 supercomputers to customers.  Launched in May 2010, the new system combines the company's new Gemini system interconnect with powerful AMD Opteron processors and is designed to bring production petascale computing to a new and expanded base of high performance computing users.  The Cray XE6 supercomputer features system enhancements such as an improved network performance and resiliency, a mature and scalable software environment, and the ability to run a broad array of independent software vendor applications with the third version of our Cray Linux Environment.

--In June, Cray completed a development milestone related to its DARPA contract.  The $12.0 million milestone represented an offset to gross R&D expense in the second quarter.

--In June, Cray announced that Sweden's Royal Institute of Technology had ordered a Cray XT6m supercomputer.  The new system will support scientists in a wide range of disciplines, including computational chemistry, bioinformatics, molecular dynamics, computational fluid dynamics and other areas.

--In May, Cray announced it had received a contract from the U.S. Department of Energy to provide the National Oceanic and Atmospheric Administration and the Oak Ridge National Laboratory with a next-generation Cray supercomputer.  Once completed, this system will be the world's most powerful supercomputer dedicated to climate research. Consisting of products and services, the multi-year, multi-phase contract is valued at $47 million.

--Cray signed a number of custom engineering contracts in the second quarter, including research in areas addressing future system technologies and system resiliency as well as contracts for data management solutions.

Conference Call Information

Cray will host a conference call on Thursday, August 5, 2010 at 1:30 p.m. PDT (4:30 p.m. EDT) to discuss 2010 second quarter financial results. To access the call, please dial into the conference at least 10 minutes prior to the beginning of the call at 1-800-762-9441. International callers should dial 1-480-629-9675. To listen to the live audio webcast, go to the Investors section of the Cray website at http://investors.cray.com.

If you are unable to attend the live conference call, an audio webcast replay will be available in the Investors section of the Cray website for 180 days. If you do not have Internet access, a replay of the call will be available by dialing 1-800-406-7325, international callers dial 1-303-590-3030, and entering the access code 4340268. The conference call replay will be available for 72 hours, beginning at 4:30 p.m. PDT on Thursday, August 5, 2010.