Cray Inc. Reports Second Quarter 2008 Financial Results

SEATTLE, WA, Jul 31 (MARKET WIRE) --
Global supercomputer leader Cray Inc. (NASDAQ: CRAY) today announced
financial results for the second quarter ended June 30, 2008. Revenue for
the quarter was $46.7 million compared to $26.6 million in the prior year
period. The company reported a net loss for the quarter of ($5.0 million)
or ($0.15) per share compared to a net loss of ($6.4 million) or ($0.20)
per share in the second quarter of 2007.

Total gross margin for the second quarter was 33.1 percent compared to
40.3 percent in the second quarter of 2007. Product margin for the second
quarter was 33.0 percent compared to 40.3 percent in the prior year
period. Service margin for the second quarter of 33.4 percent was lower
than normal levels, due primarily to startup costs related to technical
services and the delay of a maintenance contract renewal -- subsequently
completed in the third quarter.

Operating expenses for the second quarter were $21.2 million compared to
$17.8 million in the prior year period. As in recent quarters, second
quarter 2008 research and development (R&D) expense increased over the
prior year period, primarily due to the completion of a large development
contract. Included in second quarter 2008 results was stock compensation
of $0.7 million.

For the first half of 2008, Cray reported total revenue of $72.9 million
compared to $73.7 million in the prior year period. Operating expenses
increased year-over-year to $44.0 million compared to $35.2 million in the
first half of 2007. Net loss was ($15.7 million) or ($0.48) per share in
the first half of 2008 compared to a net loss of ($7.2 million) or ($0.23)
per share in the first half of 2007.

Cash and short-term investment balances as of June 30, 2008 were $115.0
million compared to $147.3 million as of March 31, 2008, reflecting the
large build-up of inventory for anticipated second half 2008 product
shipments.

"We continue to target strong revenue growth and profitability in 2008,
driven by the strength of four new products: the quad-core Cray XT4, XT5h,
XMT and XT5 supercomputers. With initial revenue for three of these
products in the first half, and contracts in place to realize our revenue
target, we are on pace to achieve our goals for the year," said Peter
Ungaro, Cray president and CEO. "We are focused on building and delivering
several very large Cray XT5 supercomputers, including the petaflops system
to Oak Ridge National Laboratory, several large systems for the U.S.
Department of Defense's High Performance Computing Modernization Program
and another large system to the University of Tennessee as part of the
National Science Foundation's Track II initiative."

Ungaro added, "Equally important to securing a strong 2008 has been, and
continues to be, our focus toward accelerating Cray's future growth and
profitability. We have made great progress in these efforts, expanding our
addressable market by over 50 percent with the introduction of the Cray
XT5 system; wrapping our core product capabilities with services and
peripherals, such as storage, that enhance the value of our total
solution; and leveraging our engineering strengths and intellectual
property to expand our addressable market into adjacent areas where even
'off-the-shelf' Cray products are not adequate to achieve unique mission
requirements. With good execution and continued focus, we expect solid
near-term results and an enhanced opportunity for longer-term growth and
shareholder value creation."

Outlook

While there is a wide range of potential outcomes, Cray continues to
expect to be profitable for the year, with revenue in the range of $280
million, weighted heavily toward the fourth quarter. Among other
variables, results will depend a great deal on the acceptance of the Oak
Ridge petaflops (1,000 trillion floating point operations per second)
supercomputer late in the year.

Cray expects 2008 gross margins to be similar to 2007 for the year, but to
fluctuate significantly by quarter. The company anticipates higher
operating expenses for the year, with the increase principally in the area
of research and development, where net R&D expense will likely increase by
approximately 30 percent in 2008 compared to 2007. This increase is due
primarily to the completion, in late 2007, of a large development contract
for the Cray XT5h system (formerly code-named BlackWidow) and additional
development costs associated with the support of the recently established
Intel partnership. Additionally, other operating expenses will increase
with the anticipated revenue growth due to commissions and other variable
compensation.

Cray is in the process of building substantial inventory for customer
shipments planned for the third and fourth quarters of 2008. Cash will
continue to fluctuate significantly in the second half of the year, with
the lowest balances in the third quarter.

For the remainder of 2008, quarterly and annual results will be affected
by many factors, including the timing and success of planned product
rollouts, the availability of qualified parts from suppliers and the
timing of customer acceptances, revenue recognition and the level of
margin contribution.

Recent Highlights

-- In the second quarter, Cray was awarded two contracts, with cumulative
value of approximately $26 million, to upgrade existing Cray XT4 systems to
incorporate quad-core AMD Opteron processors, along with additional memory.
The unique upgradeability of Cray XT systems provides customers with the
ability to more than double their existing capacity at a fraction of the
initial investment. At Oak Ridge, the upgrade increased the capability of
its Cray XT4 supercomputer from 119 teraflops to 260 teraflops. Cray
recently announced that researchers utilizing the Cray XT4 supercomputer at
Oak Ridge conducted the largest ever fusion energy simulation, a very
exciting milestone in a highly important scientific field.
-- In the second quarter, Cray received its first two acceptances of Cray
XMT systems at two different U.S. Government agencies.
-- During the second quarter, Cray received Technical Services contracts
totaling over $15 million. These included new storage subsystems to
accompany Cray supercomputer installations and another contract to install,
integrate and support a high performance computing system for
the University of Tsukuba in Japan. The initial integration and
installation of the Tsukuba system was completed in the second quarter.
-- In April, Cray announced it had entered a multi-year partnership with
Intel to develop and introduce next-generation supercomputers that will
incorporate future Intel processors. The two industry leaders are
collaborating to develop high performance computing systems that will help
solve some of the world's most important scientific and engineering
challenges by dramatically advancing the state of high-end computing.
-- In July, Cray announced a major achievement on the part of the
Pittsburgh Supercomputing Center where, on a Cray XT3 system, researchers
incorporated real-time radar data into their high-resolution thunderstorm
forecasting model for the first time. This critical milestone demonstrates
the ability to predict storms more accurately and with improved lead time.

Conference Call Information

Cray will host a conference call today, Thursday, July 31, 2008 at 1:30
p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss 2008 second quarter
financial results. To access the call, please dial into the conference at
least 10 minutes prior to the beginning of the call at 1-800-240-8621.
International callers should dial 303-205-0033. To listen to the live
audio webcast, go to the Investors section of the Cray website at
http://investors.cray.com.

If you are unable to attend the live conference call, an audio webcast
replay will be available in the Investors section of the Cray website for
180 days. If you do not have Internet access, a replay of the call will be
available by dialing 1-800-405-2236 and entering access code 11117795.
International callers can listen to the replay by dialing 303-590-3000,
access code 11117795. The conference call replay will be available for 72
hours, beginning at 4:30 p.m. Pacific Time on Thursday, July 31, 2008.

About Cray Inc.

As a global leader in supercomputing, Cray provides highly advanced
supercomputers and world-class services and support to government,
industry and academia. Cray technology enables scientists and engineers
to achieve remarkable breakthroughs by accelerating performance,
improving efficiency and extending the capabilities of their most
demanding applications. Cray's Adaptive Supercomputing vision will result
in innovative next-generation products that integrate diverse processing
technologies into a unified architecture, allowing customers to surpass
today's limitations and meeting the market's continued demand for
realized performance. Go to www.cray.com for more information.

Safe Harbor Statement

This press release contains forward-looking statements. There are certain
factors that could cause Cray's execution to differ materially from those
anticipated by the statements above. These factors include anticipated
revenue subject to complex revenue recognition rules; significantly
fluctuating quarterly operating results; lower margins and operating
results due to many variables including pricing pressure and increasing
pressure on research and development expenses; the technical challenges of
developing high performance computing systems, including potential delays
in development programs, such as the quad-core Cray XT4, Cray XT5, Cray
XMT, Cray XT5h and future systems; the level, timing and continuation of
government funding for supercomputer purchases and research and
development activities, including negotiating amendments to our DARPA
program to incorporate Intel technologies; the successful passing of
customer acceptance tests; significant reliance on third-party
development service and parts suppliers, including their competitiveness
with other suppliers and potential delays in the results of their
development and in the availability of qualified parts from suppliers;
the successful porting of application programs to Cray supercomputer
systems; Cray's ability to keep up with rapid technological change;
Cray's ability to compete against larger, more established companies and
innovative competitors; and general economic and market conditions. For a
discussion of these and other risks, see "Risk Factors" in Cray's most
recent Quarterly Report on Form 10-Q filed with the SEC.

Cray is a
registered trademark, and Cray XT3, Cray XT4, Cray XT5, Cray XT5 h and
Cray XMT are trademarks of Cray Inc. All other trademarks are the
property of their respective owners.

CRAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------

REVENUE:
Product $ 32,851 $ 13,789 $ 43,541 $ 47,449
Service 13,882 12,836 29,320 26,285
--------- --------- --------- ---------
Total revenue 46,733 26,625 72,861 73,734
--------- --------- --------- ---------

COST OF REVENUE:
Cost of product revenue 22,003 8,227 28,415 31,804
Cost of service revenue 9,241 7,660 17,600 15,658
--------- --------- --------- ---------
Total cost of revenue 31,244 15,887 46,015 47,462
--------- --------- --------- ---------
Gross margin 15,489 10,738 26,846 26,272
--------- --------- --------- ---------

OPERATING EXPENSES:
Research and development, net 11,890 8,859 25,609 16,739
Sales and marketing 5,848 5,123 11,230 10,391
General and administrative 3,465 3,822 7,161 8,102
Restructuring and severance - - - 10
--------- --------- --------- ---------
Total operating expenses 21,203 17,804 44,000 35,242
--------- --------- --------- ---------

Loss from operations (5,714) (7,066) (17,154) (8,970)

Other income (expense), net 540 76 793 471

Interest income (expense), net 254 966 1,091 1,999
--------- --------- --------- ---------

Loss before income taxes (4,920) (6,024) (15,270) (6,500)

Income tax expense (107) (360) (389) (725)
--------- --------- --------- ---------

Net loss $ (5,027) $ (6,384) $ (15,659) $ (7,225)
========= ========= ========= =========

Diluted net loss per common
share $ (0.15) $ (0.20) $ (0.48) $ (0.23)
========= ========= ========= =========

Diluted weighted average
shares outstanding 32,521 31,635 32,446 31,560
--------- --------- --------- ---------

CRAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

June 30, December 31,
2008 2007
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 90,110 $ 120,539
Restricted cash 10,000 10,000
Short term investments, available-for-sale 14,901 48,582
Accounts receivable, net 32,189 23,635
Inventory 114,992 55,608
Prepaid expenses and other current assets 7,098 4,120
Prepaid research and development services 7,808 -
------------- -------------
Total current assets 277,098 262,484

Property and equipment, net 15,953 17,044
Service inventory, net 2,389 2,986
Goodwill 64,018 65,411
Deferred tax asset 601 512
Intangible assets, net 1,091 1,181
Other non-current assets 5,703 6,284
------------- -------------
TOTAL ASSETS $ 366,853 $ 355,902
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,593 $ 14,148
Accrued payroll and related expenses 11,901 12,023
Advance research and development payments 11,621 29,669
Other accrued liabilities 8,439 7,488
Deferred revenue 37,197 48,317
------------- -------------
Total current liabilities 134,751 111,645

Long-term deferred revenue 14,599 11,745
Other non-current liabilities 4,547 4,310
Convertible notes payable 80,000 80,000
------------- -------------
TOTAL LIABILITIES 233,897 207,700

Shareholders' equity:
Common stock 516,079 513,196
Accumulated other comprehensive income 11,092 13,562
Accumulated deficit (394,215) (378,556)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 132,956 148,202
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 366,853 $ 355,902
------------- -------------

Investors:
Paul Hiemstra
206/701-2044
ir@cray.com

Copyright 2008, Market Wire, All rights reserved.

-0-