Cray today announced financial results for the fourth quarter and full-year 2007. Revenue for the quarter was $57.4 million compared to $101.4 million in the prior year period. The company reported a net loss for the quarter of ($3.6 million) or ($0.11) per share compared to net income of $8.7 million or $0.33 per share in the fourth quarter of 2006. Total gross margin for the fourth quarter was 29.6 percent compared to 25.4 percent in the fourth quarter of 2006. Product margin was 25.9 percent compared to 22.1 percent in the prior year period. Fourth quarter 2007 service margin of 40.9 percent was in line with the company's target level. Fourth quarter 2007 operating expenses were $21.9 million compared to $16.6 million in the prior year period. 2006 fourth quarter operating expenses benefited from the timing of various research and development contracts. Fourth quarter 2007 research and development expenses increased significantly over earlier 2007 quarters due primarily to the expiration of a significant development contract. Included in fourth quarter 2007 results were non-cash items of $3.8 million for depreciation and amortization and $0.6 million related to stock compensation. For the full-year 2007, Cray reported revenue of $186.2 million and a net loss of ($5.7 million) compared to revenue of $221.0 million and a net loss of ($12.1 million) in 2006. Total gross margin for 2007 improved to 35.1 percent compared to 28.9 percent in 2006. Operating expenses, excluding restructuring and severance, increased to $75.0 million in 2007 from $69.8 million in 2006 due to increased research and development expense. Included in 2007 results were non-cash items of $13.4 million for depreciation and amortization and $3.2 million related to stock compensation. Cash and short-term investment balances as of December 31, 2007 were $179.1 million, compared to $139.7 million as of September 30, 2007 and $140.3 million as of December 31, 2006. Cash benefited from strong collections. "We made good progress in 2007 despite some challenges," said Peter Ungaro, president and CEO of Cray. "On the positive side, we improved gross margins significantly, had a tremendous year internationally, made solid strides toward our adaptive supercomputing vision with the introduction of the Cray XT5 family of products, and improved our balance sheet, ending the year with a record level of cash. However, we did not achieve our key priorities for the year of profitability and growth, due primarily to delays in component availability and product development." Ungaro added, "Our goals and clear intent for 2008 are to be profitable and to grow. Our priorities to support these goals are to focus on product development initiatives, continue to win new business, and establish the basis of sustained profitability and supercomputing market leadership. With the addition of Ian Miller as senior vice president of sales and marketing and Jill Hopper as our new vice president of government programs, we have further strengthened our leadership team and continue to drive toward our goals." Outlook For 2008, while there is a wide range of potential outcomes, Cray targets profitability for the year and expects significantly improved revenue over 2007, weighted heavily toward the second half of the year. The company targets initial revenue from quad-core Cray XT4 and hybrid Cray XT5h vector systems (previously code-named "BlackWidow") in the first half of 2008 and initial Cray XT5 system revenue later in the year. Cray expects 2008 gross margins to be similar to 2007 for the year, but will likely fluctuate significantly by quarter. The company anticipates increased operating expenses for the year. The increase is principally in the area of research and development, where net expense will likely increase by approximately 20% in 2008 compared to 2007. Cray anticipates using cash over the course of the year, very heavily in the first two quarters, as the company builds inventory for planned customer shipments in the second half of the year. 2008 quarterly and annual results will be affected by many factors, including the level and timing of government funding, the timing and success of planned product rollouts, the timing and success of meeting certain product development milestones and the timing of customer orders, shipments, acceptances, revenue recognition and margin contribution. Cray expects quarterly results to fluctuate significantly. Recent Highlights

• In February, Cray announced that Sandia National Laboratories has entered into an agreement for a processor upgrade to its "Red Storm" supercomputer from 124 teraflops (one trillion floating points per second) to 284 teraflops. Already one of the world's largest systems, this performance boost will allow researchers and scientists to run even higher resolution models to increase the accuracy of critical computer simulations.
• In January, Cray unveiled the new Cray XT4 supercomputer at Scotland's University of Edinburgh, marking the official launch of the United Kingdom's High-End Computing Terascale Resource (HECToR) project. Established to provide next-generation HPC service for the UK's academic community, HECToR will greatly assist researchers to satisfy the most demanding of scientific goals and push the boundaries of their ambitions.
• In December, Cray announced the selection of a 27 teraflops Cray XT4 supercomputer by the National Astronomical Observatory of Japan to aid scientists and researchers in the study of the origin of planetary systems and galaxies and the formation of stars and star clusters.
• In December, Cray announced its first order for the next-generation Cray XT5 supercomputer from the Danish Meteorological Institute, to be installed in the second half of 2008. The Cray XT5 system will be used to produce highly reliable numerical weather forecasts and to develop and run numerical models of the ocean and atmosphere for climate assessment.
• In November, Cray introduced its next-generation Cray XT5 family of supercomputers, marking a significant step toward Cray's vision of adaptive supercomputing. The Cray XT5 family incorporates and extends the performance and scalability benefits of the successful Cray XT line and continues to drive industry leadership with the first integrated hybrid supercomputer, the Cray XT5h system. The Cray XT5h system optimizes application efficiency and enables customers to tackle problems that cannot currently be solved in a single architecture system.
• In January, Cray announced the appointment of Jill Hopper to the position of vice president of government programs. With over 20 years of government affairs experience at the federal level, Hopper will be responsible for leading all government relations activities.
• In February, Cray announced the appointment of Ian Miller to the position of senior vice president responsible for sales and marketing. With more than 25 years experience in the enterprise computing market, Miller will be responsible for all Cray sales and marketing activities worldwide.