Yesterday long-time pure play HPC company Cray posted its first quarter results for 2010 (ended March 31), and the news was dark indeed
Revenue for the quarter was $28.4 million compared to $74.5 million in the prior year period. The company reported a net loss for the quarter of ($11.6 million) or ($0.34) per share compared to a net loss of ($4.9 million) or ($0.15) per share in the first quarter of 2009.
Actually, yesterday was a big day for HPC earnings, with SGI announcing poor results as well.
For Cray margins fell, and the company had to manage excess inventory due to slow sales, though they did manage to cut operating costs as well
Operating expenses for the first quarter of 2010 were $18.2 million compared to $21.4 million in the prior year period due primarily to lower spending on outside services in research and development
Cray is widely known for the strength of its R&D program, and I suspect that this cost reduction represents the completion of outside design services related to Baker and the Gemini interconnect, not any real reduction in R&D that may impact the company’s competitive position down the line (although to be fair I haven’t asked).
CEO Ungaro was (not surprisingly) upbeat
Ungaro added, “We have had an extremely strong run of wins at major supercomputing centers around the world and within our custom engineering business. As a result, we now have nearly all of the orders we need to achieve our revenue outlook for the year.”
And if you look at the string of recent announcements (which include $40M+ purchases) he’s right, but only if Baker and Gemini are on time and work such that they can be revenued quickly. As with any new interconnect silicon project, that’s a big if.
[UPDATED with info from the call transcript]
A review of the call transcript shows that as Ungaro ran through the littany of large awards announced during the quarter he added a piece of news about new business that I didn’t have
In addition, we are in the final stages of negotiating two other large contracts where we have recently been selected as a sole vendor. Combined these contracts are valued at over $90 million, and would have product deliveries starting this year through 2013, along with multiple years of service.
Interestingly, all of these very large wins could prove to be a mixed blessing for the company. Although they are in a reasonable cash position and can likely finance the builds with cash and debt, if the timing on awards is wrong (or if delivery or funding slip and mess up the schedule) Cray’s relatively small build and ship staff may have a hard time getting everything out the door. Many of the big buys mentioned in the call have penalties for missed delivery, so Cray’s tightrope may be even narrower than originally thought.
If they meet their deliverables, though, they will hit the financial ball out of the park. As was pointed out during the call, if they are to make their annual guidance for this year as they are still predicting, they’ll have a $200M fourth quarter. That’s a big, but not insane number: in Q4 2008 they hit over $155M in revenue.