GOVERNMENT

Cray Inc. reported financial results for the first quarter ended March 31, 2004. The company reported total revenue of $42.1 million for the first quarter, compared to $44.1 million in the same period last year. Operations for the period resulted in a loss of $3.8 million, or $.05 per share, compared to net income of $1.2 million, or $.02 per share, in the first quarter of 2003. Product gross margin declined to 30.4 percent from 42.1 percent in the first quarter of 2003 due primarily to product mix. The company shipped fewer-than-anticipated Cray X1(TM) systems and shipped some lower-margin cluster systems. Additionally, low-margin revenue was generated from continued performance on the Red Storm and Cascade engineering projects. Service revenue declined as expected to $13.8 million, from $16.8 million in the first quarter of 2003. Service margin, at 37.7 percent, was above target. "Quarter one results were affected by government procurement delays and a general slow-down in the defense segment," said Jim Rottsolk, CEO of Cray Inc. "While we are making progress on the sales front and orders have begun to pick up, the weakness in revenue experienced in the first quarter will continue through the first half. Until we introduce the Cray X1E(TM), Red Storm and Cray XD1(TM) products in the second half, the Cray X1 system remains our major source of revenue. "Once these new products become available, we anticipate significant, accelerating growth. However, it is unlikely that we will make up for the first half shortfall in time to meet our 2004 plan," said Rottsolk. "We are focused on building our order pipeline, delivering new products and positioning the company for substantial growth and profitability. "By the end of 2004, we will have the strongest product portfolio in the industry," Rottsolk added. "With the Cray XD1 system along with our previously announced Red Storm and Cray X1 systems, we can address the entire HPC market with high-bandwidth, purpose-built solutions." Recent Highlights We are pleased to announce that Korea's Public Procurement Service has selected Cray to supply the next-generation supercomputer to the Korea Meteorological Administration. This award, based on the Cray X1 product family, is worth more than $43 million and is subject to contract completion. Separately, the Pittsburgh Supercomputing Center (PSC) has advised Cray that it is placing an advance order for the company's upcoming product based on the Sandia "Red Storm" supercomputer. This is the first disclosed customer for the new product line, which will be launched later this year. Cray previously announced an order for a Cray X1 supercomputer system from Madison Research Corporation for the U.S. Army Space and Missile Defense Command (SMDC). The company also announced the first Cray X1 system order in the subcontinent of India from the Tata Institute of Fundamental Research. On April 1, Cray completed the acquisition of Vancouver-based OctigaBay Systems Corporation and announced the naming of its high bandwidth product now known as the Cray XD1 system. According to IDC, this acquisition, together with the Red Storm product, more than quadruples Cray's addressable market. The first Cray XD1 beta system has already shipped, with other beta systems expected to follow during the second quarter. Said Rottsolk, "The addition of the Cray Canada team is very exciting for us. The XD1 system rounds out our HPC product line and opens the door to market expansion beyond traditional HPC users." Investor Conference Call Management will discuss results and the company's outlook followed by a question and answer session for investors today, April 29 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time). The call-in number is 800-867-0448. International callers should dial 303-275-2170. If you are unable to participate, a replay will be available from 10 a.m. Pacific Time on April 29, 2004 for 48 hours. To access, dial 800-405-2236 or 303-590-3000 (international) -- enter access code 576111. The conference call will be webcast live and will be archived for 90 days. It will be available in the Investors section of the Cray website at http://investors.cray.com.