APPLICATIONS
Cray Sales Plummet 45% in Q1
Cray today announced financial results for the first quarter ended March 31, 2008 as sales declined 45 percent. Revenue for the quarter was $26.1 million compared to $47.1 million in the prior year period. The company reported a net loss for the quarter of ($10.6 million) or ($0.33) per share compared to a net loss of ($0.8 million) or ($0.03) per share in the first quarter of 2007. 
Total gross margin for the first quarter was 43.5 percent compared to 33.0 percent in the first quarter of 2007. Improved product margin, driven primarily by product mix, grew to 40.0 percent compared to 30.0 percent in the prior year period. First quarter 2008 service margin of 45.9 percent was favorably impacted by a one-time service project and was above the company's target level of 40 percent. Operating expenses for the first quarter were $22.8 million compared to $17.4 million in the prior year period. As in fourth quarter 2007, first quarter 2008 research and development expenses increased significantly over the prior year period due primarily to the expiration of a large development contract. Included in first quarter 2008 results were non-cash items of $2.9 million for depreciation and amortization and $0.6 million related to stock compensation. Cash and short-term investment balances as of March 31, 2008 were $147.3 million, compared to $179.1 million as of December 31, 2007 and $147.6 million as of March 31, 2007. "Our goals for 2008 are to be profitable and to grow. Though not evident in first quarter results, we've made great progress over the first few months this year toward achieving these goals," said Peter Ungaro, president and CEO of Cray. "We've announced a number of significant wins this year, including a near-petaflops system with the University of Tennessee and four systems with the U.S. Department of Defense; we delivered initial quad-core Cray XT4 systems; we recognized revenue on our first Cray XT5h vector system; and finally, with the Cray XT5 MPP supercomputer due to begin shipping later this year, we will expand our addressable market by as much as fifty percent." Ungaro added, "Additionally, we announced yesterday a partnership with Intel that will bring together Cray's industry leadership in supercomputing systems with Intel's leadership in processing technologies. In addition to our current partnership with AMD, this powerful collaboration will, in the future, give our customers a tremendous amount of benefit in the form of additional capabilities and choice -- providing for the best microprocessors the industry has to offer in the most scalable supercomputers in the world." Ungaro concluded, "We are planning to deliver our first petaflops supercomputer to Oak Ridge National Laboratory late this year, and we now have sufficient visibility to achieve our 2008 growth objective. Our current priorities are to continue to focus around product development and acceptances, winning new business, and leveraging our products and technology to expand Cray's role in the supercomputing marketplace." Outlook For 2008, while there is a wide range of potential outcomes, Cray expects to be profitable for the year, with revenue of somewhat above $280 million, weighted heavily toward the second half of the year. Among other variables, this outlook depends heavily on the acceptance of the petaflops (1,000 trillion floating point operations per second) supercomputer late in the year. The company anticipates initial revenue from quad-core systems in the second quarter and initial Cray XT5 Massively Parallel Processing (MPP) system revenue later in the year. Cray expects 2008 gross margins to be similar to 2007 for the year, but will fluctuate significantly by quarter. The company anticipates higher operating expenses for the year, with the increase principally in the area of research and development, where net research and development expense will likely increase by approximately 30% in 2008 compared to 2007. This increase is driven by the completion of a significant funding agreement for the BlackWidow system and additional development costs associated with the support of our Intel partnership. Additionally, other operating expenses would increase with the anticipated revenue growth due to commissions and other variable compensation. Cray anticipates cash balances will vary significantly over the remainder of the year, as the company builds inventory for planned second half 2008 customer shipments. 2008 quarterly and annual results will be affected by many factors, including the timing and success of planned product rollouts, availability of parts from suppliers and the timing of customer acceptances, revenue recognition and the level of margin contribution.
Total gross margin for the first quarter was 43.5 percent compared to 33.0 percent in the first quarter of 2007. Improved product margin, driven primarily by product mix, grew to 40.0 percent compared to 30.0 percent in the prior year period. First quarter 2008 service margin of 45.9 percent was favorably impacted by a one-time service project and was above the company's target level of 40 percent. Operating expenses for the first quarter were $22.8 million compared to $17.4 million in the prior year period. As in fourth quarter 2007, first quarter 2008 research and development expenses increased significantly over the prior year period due primarily to the expiration of a large development contract. Included in first quarter 2008 results were non-cash items of $2.9 million for depreciation and amortization and $0.6 million related to stock compensation. Cash and short-term investment balances as of March 31, 2008 were $147.3 million, compared to $179.1 million as of December 31, 2007 and $147.6 million as of March 31, 2007. "Our goals for 2008 are to be profitable and to grow. Though not evident in first quarter results, we've made great progress over the first few months this year toward achieving these goals," said Peter Ungaro, president and CEO of Cray. "We've announced a number of significant wins this year, including a near-petaflops system with the University of Tennessee and four systems with the U.S. Department of Defense; we delivered initial quad-core Cray XT4 systems; we recognized revenue on our first Cray XT5h vector system; and finally, with the Cray XT5 MPP supercomputer due to begin shipping later this year, we will expand our addressable market by as much as fifty percent." Ungaro added, "Additionally, we announced yesterday a partnership with Intel that will bring together Cray's industry leadership in supercomputing systems with Intel's leadership in processing technologies. In addition to our current partnership with AMD, this powerful collaboration will, in the future, give our customers a tremendous amount of benefit in the form of additional capabilities and choice -- providing for the best microprocessors the industry has to offer in the most scalable supercomputers in the world." Ungaro concluded, "We are planning to deliver our first petaflops supercomputer to Oak Ridge National Laboratory late this year, and we now have sufficient visibility to achieve our 2008 growth objective. Our current priorities are to continue to focus around product development and acceptances, winning new business, and leveraging our products and technology to expand Cray's role in the supercomputing marketplace." Outlook For 2008, while there is a wide range of potential outcomes, Cray expects to be profitable for the year, with revenue of somewhat above $280 million, weighted heavily toward the second half of the year. Among other variables, this outlook depends heavily on the acceptance of the petaflops (1,000 trillion floating point operations per second) supercomputer late in the year. The company anticipates initial revenue from quad-core systems in the second quarter and initial Cray XT5 Massively Parallel Processing (MPP) system revenue later in the year. Cray expects 2008 gross margins to be similar to 2007 for the year, but will fluctuate significantly by quarter. The company anticipates higher operating expenses for the year, with the increase principally in the area of research and development, where net research and development expense will likely increase by approximately 30% in 2008 compared to 2007. This increase is driven by the completion of a significant funding agreement for the BlackWidow system and additional development costs associated with the support of our Intel partnership. Additionally, other operating expenses would increase with the anticipated revenue growth due to commissions and other variable compensation. Cray anticipates cash balances will vary significantly over the remainder of the year, as the company builds inventory for planned second half 2008 customer shipments. 2008 quarterly and annual results will be affected by many factors, including the timing and success of planned product rollouts, availability of parts from suppliers and the timing of customer acceptances, revenue recognition and the level of margin contribution.