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Cray secures funds, CFO and shareholder lawsuits

Praying for Black Widow

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Supercomputer maker Cray has been on a fantastic voyage this week, receiving another dose of funding from the US government, two class action lawsuits and a new CFO.

Cray nailed down $17m from the Feds over the next two years to continue work on the company's future system code-named Black Widow. The computer is due out in 2006 and will be Cray's pride and joy. The government often subsidizes Cray's work in the hopes of receiving very specialized, very powerful systems for crunching away on military and scientific tasks.

"The development of these systems advances our product roadmap," said Jim Rottsolk, the CEO at Cray. "With continued funding, we expect Black Widow to reach a peak performance of several hundred teraflops in its initial design, and to exceed a petaflops (a thousand trillion calculations per second) in its product lifetime."

That, however, was the good news for Cray.

A pair of shareholder lawsuits have been filed, alleging that Cray hid business problems from investors. Cray's stock dropped 40 per cent last July after it revealed disappointing second quarter revenue and announced a 15 per cent workforce reduction.

"We intend to show the leadership at Cray intentionally misled investors through a well-orchestrated campaign of misinformation," said Steve Berman of law firm Hagens Berman Sobol Shapiro and lead attorney in one lawsuit. "Their actions have hurt thousands of individuals who should have had the benefit of the same information that executives used when they sold their stock."

Lerach Coughlin Stoia Geller Rudman & Robbins also filed suit for investors who held shares of Cray between 31 July, 2003 and 12 May, 2005. This suit, however, focuses more on Cray's decision to delay the filing of its 10-K annual report with the government and what the law firm describes as poor operational controls within the hardware maker.

In a statement, Cray responded to the first lawsuit.

"We believe this lawsuit is without merit, and the Company intends to defend it aggressively," Rottsolk said.

Cray did not immediately return a call seeking comment on the second lawsuit.

Away from the lawsuits, Cray this week also named a new CFO when it tapped Brian Henry for the post. Henry previously served as CFO of Onyx Software and arrives at Cray with quite the turmoil on his hands. Cray's former CFO departed in October, its auditor Deloitte & Touche resigned last month and earlier this month the Nasdaq threatened to delist Cray due to its failure to meet a Sarbanes-Oxley compliance requirement. ®

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