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Cray's Q2 revenue gigaflops

Cuts costs, staff and share price

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Supercomputer specialist Cray is looking far from super after posting a massive drop in second quarter revenue earlier this week that has since sent its shares tumbling.

Cray generated $27m in the second quarter, which doesn't match up terribly well with the $62m reported in the same period last year. Cray's lackluster revenue led to a net loss of $55m in this year's Q2, which compares to a net gain of $8m last year. The poor results prompted a 40 per cent drop on Cray's shares, sending it to its lowest mark in nearly two years.

"While we expected the second quarter to be weak, the weakness was compounded by a contract delay for a major order and a continued general slow-down in the defense segment," said Jim Rottsolk, CEO of Cray.

Cray managed only $9.5m in product revenue during the quarter with the vast majority of that coming from its Cascade and Red Storm projects. The Cray X1 - "the company's only current product" - led to negligible sales. Services carried the company in the quarter on $12.2m in revenue and higher margins.

As a result of its performance, Cray is now looking to cut costs by 20 per cent and will trim 15 per cent of its staff or 150 workers. This should get it to a point where quarterly costs come in between $17m and $18m. Cray expects its full year 2004 revenue to be under $200m, but hopes new products will get it to $300m in 2005.

The brightest news for Cray is an increased order backlog. It currently has a backlog of $126m, which is $51m higher than expected. "In addition to this increase in backlog, we announced major wins that will be booked in future periods," Rottsolk said.

"Basically management has suffered from a perfect storm so far this year," Alan Robinson, an analyst at Delafield Hambrecht told CBS MarketWatch. "It had a slowdown in its key defense client's spending and a delay in the rollout of two new products expected to launch in the middle of this year. That combination caused not only actual results to come in below expectations, but expectations for the rest of the year to fall below Wall Street's forecasts."

There has been some minor speculation that Sun Microsystems could acquire Cray in a bid to boost Sun's high performance computing prowess and Opteron processor-based server line.

Cray's shares are trading down almost 5 percent today at $2.90. This is a massive drop from its 52-week high of $13.99. ®

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