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Cray Inc. has announced financial results for the second quarter ended June 30, 2007. Revenue for the quarter was $26.6 million compared to $38.5 million in the prior year period. Net loss for the quarter was ($6.4 million) or ($0.20) per share compared to a net loss of ($7.2 million) or ($0.32) per share in the second quarter of 2006. Total gross margin for the second quarter of 2007 was 40.3 percent compared to 32.5 percent in the prior year period. Product margin for the second quarter was 40.3 percent compared to 26.6 percent in the second quarter of 2006. The high product margin was driven by product mix across a small number of transactions and the reduction of low margin development revenue. Service margin for the second quarter was also 40.3 percent compared to 43.0 percent in the second quarter of 2006, in line with the company's target level. Operating expenses were $17.8 million in the second quarter compared to $16.7 million in the prior year period, excluding restructuring and severance. The increase was driven by higher research and development expenses, partially offset by both lower sales and marketing and lower general and administrative expenses. Included in second quarter 2007 results were non-cash items of $3.2 million for depreciation and amortization and $1.0 million related to stock compensation. For the first half of 2007, Cray reported total revenue of $73.7 million compared to $87.0 million in the prior year period. Operating expenses were up modestly year-over-year to $35.2 million compared to $34.4 million in the first half of 2006, excluding restructuring and severance. Net loss improved by 42 percent from the prior year to ($7.2 million) or ($0.23) per share in the first half of 2007 compared to a net loss of ($12.5 million) or ($0.56) per share in the first half of 2006. Cash and short-term investment balances as of June 30, 2007 were $124.5 million compared to $140.3 million reported as of December 31, 2006. "Thus far in 2007 we have improved bottom-line results year-over-year and, with well over $100 million in new contract announcements, we have continued to leverage our strong product portfolio and supercomputing roadmap in the marketplace," said Peter Ungaro, president and CEO of Cray. "We have also seen a number of product development challenges surface over the past few months and have worked aggressively to address them. We are presently on track to build initial BlackWidow and quad-core Cray XT4 systems late in the fourth quarter of this year, for revenue in the first half of 2008. We anticipate availability of initial Cray XMT systems in the first half of 2008. Clearly, our key priorities for the remainder of 2007 are to execute on product development initiatives and to win new business around the world." Outlook Quarterly and annual results for 2007 will be affected by many factors, including the level and timing of government funding, the timing of customer orders, shipments, acceptances and revenue recognition and the timing and success of planned product rollouts. While there continues to be a wide range of potential outcomes for quarterly and annual results, Cray estimates 2007 revenue will likely be below $190 million, and consequently does not anticipate profitability for the year. The company anticipates mixed results for the third and fourth quarters, as two large revenue transactions are anticipated to make up a substantial majority of revenue for the second half of the year, either or both of which could be accepted in the third or fourth quarter. The company anticipates minimal, if any, revenue from BlackWidow and quad-core Cray XT4 systems in 2007. Cray expects an improved gross margin percent and higher operating expenses for the year compared to 2006. The company anticipates using cash in the third quarter with positive cash flow in the fourth quarter. For 2008, while there is a wide range of potential outcomes, Cray expects improved revenue over 2007 and anticipates being profitable for the year.