GOVERNMENT

Cray Inc. announced that they have signed a multi-year contract with the U.S. Department of Energy's (DOE) Oak Ridge National Laboratory (ORNL) to provide the world's first petaflops-speed (1,000 trillion floating-point operations per second) supercomputer. The total contract, including systems and services, is valued at about $200 million and calls for progressive upgrades to ORNL's existing Cray XT3 supercomputer. This system will be upgraded to dual-core processors later this year, accelerating peak speed from 25 teraflops (25 trillion calculations per second) to 50 teraflops. Further upgrades will increase the performance to 100 teraflops, planned in late 2006, and to 250 teraflops, planned in late 2007. ORNL is then expected to install a next-generation Cray supercomputer in late 2008. This system, currently code-named 'Baker,' is designed to deliver peak performance of one petaflops, making it roughly three times faster than any existing computer in the world. All systems provided for in this contract will utilize current and future versions of the AMD Opteron processor. "ORNL has had a long and rewarding partnership with Cray that has enabled us to accomplish breakthrough science," said ORNL Director Jeff Wadsworth. "The Department of Energy's Leadership Computing Facility at ORNL will help ensure that the United States remains a world leader by helping solve 'grand challenge' problems in nanoscience, biology and energy technologies." "Without a doubt, this is a great day for Cray," said Cray president and CEO Peter Ungaro. "Cray supercomputers were first to achieve gigaflops sustained performance in 1989, and first to break the sustained teraflops barrier in 1998. Now ORNL and Cray are not only well on the way to breaking the petaflops barrier, we are also working together to realize Cray's Adaptive Supercomputing vision by making this immense processing power available for real-world scientific and engineering applications." Staff and guest researchers at ORNL use Cray supercomputers to explore the frontiers of neutron science, biological systems, energy production and advanced materials. In addition, scientists and industry partners such as The Boeing Company, DreamWorks Animation SKG, Harvard University and the California Institute of Technology will be able to employ the enhanced Cray supercomputer configuration to conduct high-impact projects as part of DOE's INCITE program. Investor Considerations Cray expects to begin recognizing product revenue on the ORNL installation in the second half of 2006, with approximately one third of the revenue to be recognized over the next two years and the remainder expected to be recognized thereafter. The total approximate value of the contract is contingent upon Cray meeting certain delivery dates. While this potential contract was considered in Cray's prior revenue guidance for 2006, most recently updated on June 7, 2006, the size of the deliverables scheduled in late 2006 will influence total annual revenue and could affect the range of outcomes for the year on both ends. The timing of revenue recognition on these deliverables could affect 2006 and 2007 by as much as $30 million.