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Cray could do well if their X1E does well.

http://www.cray.com

SEATTLE, July 26, 2004 – Global supercomputer leader Cray Inc. (Nasdaq NM: CRAY) today reported financial results for the second quarter ended June 30, 2004.

The company reported second quarter revenue of $21.7 million, compared to $61.8 million in the same period last year. GAAP net loss for the quarter was ($54.5) million, or ($0.64) per share, compared to net income of $7.9 million, or $0.10 per diluted share, in the first quarter of 2003.

Non-GAAP(1) net loss was ($11.7) million for the quarter, or ($0.14) per share. Non-GAAP net loss for the quarter excludes $45.8 million in charges related to the acquisition of OctigaBay, the majority of which relates to the write-off of in-process research and development.

The majority of the $9.5 million in product revenue came from continued progress on the lower margin Cascade and Red Storm engineering projects. Revenue from the Cray X1™, the company’s only current product, was negligible for the quarter. Revenue from service was $12.2 million, with increased margins of 36.0%, as compared to 31.3% in the prior year.

“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 Inc.

The company recorded a significant increase in backlog, as predicted, of $51 million, to $126 million from $75 million in the previous quarter. “In addition to this increase in backlog, we announced major wins that will be booked in future periods,” said Rottsolk.

Outlook & Restructuring

The company said the following factors will affect the balance of the year:

•!!! The next generation vector product, the Cray X1E, will not generate revenue until the first quarter of 2005 due to delays in engineering and fabrication!!!

• While production of the Sandia Red Storm system has begun and the first shipment is expected this quarter, delays in part shipments will impact the number of systems that can be delivered to other customers this year.