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Tuesday March 6, 8:21 pm Eastern Time
Press Release
Cray Inc. Reports Fourth Quarter and Year End 2000 Results
Company Positions Itself for Leadership and Growth with Broadest Supercomputer Product Offerings
SEATTLE--(BUSINESS WIRE)--March 5, 2001--Global supercomputer leader Cray Inc. (NASDAQ NM: CRAY - news) today reported financial results for the company's fourth quarter and year end 2000. Cray will hold an investor teleconference at 1:30 p.m. PST/4:30 p.m. EST today to discuss the results and the company's outlook (details are provided below).

For the fourth quarter ended December 31, 2000, Cray Inc. reported revenues of $33.4 million, compared to revenues of $343,000 for the fourth quarter of 1999. As the company announced in early January 2001, fourth quarter results were impacted by a delay in the timing of orders, which resulted in some product revenue slipping into the first quarter 2001. The loss from operations in the fourth quarter 2000 was increased by one-time non-cash adjustments totaling $5.6 million, of which $3.1 million was added to the cost of product revenue and $2.5 million to research and development expenses. These adjustments were related to Cray SV1(TM) processor ``end-of-life'' inventory during the transition to the enhanced Cray SV1ex(TM) processor, and Cray MTA-1 gallium arsenide inventory and equipment due to the successful testing of the all-CMOS components for the Cray MTA-2(TM). Exclusive of these adjustments and imputed interest and amortization of expenses related to the acquisition of the Cray business unit assets, the company reported a net loss of $6.3 million, or ($0.19) per share. Including these adjustments and imputed interest and amortization expenses, the company's net loss for the fourth quarter was $13.9 million or ($0.41) per share.

For the year ending December 31, 2000, the company reported revenues of $118.1 million, compared to revenues of $1.8 million for the prior year. The company reported a net loss of $25.4 million, or ($0.78) per share for the year ended December 31, 2000, compared to a loss of $34.6, or ($1.74) per share in the prior year.

Product Offerings Position Cray for Strong Growth

``Cray has now laid the foundation for industry leadership and strong growth,'' said Jim Rottsolk, company president and CEO. ``We have recently taken dramatic steps to increase our revenue opportunities with the broadest range of product offerings in the industry. Our Alpha Linux-based Cray SuperCluster® systems will offer industry-leading speed with increasingly powerful data center features and attractive price-performance. Our marketing agreement with NEC will fill an important gap in our vector supercomputer offerings with the high-end vector NEC SX-5 Series and its successors. We expect these products to contribute moderately to our results in the second half of 2001, followed by a strong ramp in 2002 and beyond. We expect that eventually each of these products will add up to $100 million of annual revenues to the company.

``We believe that other significant developments since the beginning of 2001 bode well for the future. The NEC agreement will also provide $25 million in cash at significantly above-market prices, and at the company's lowest cost of capital to date. We recently received an order for a 28-processor MTA-2, the first all CMOS configuration of our revolutionary multi-threaded architecture and another major milestone in that product's move towards full commercialization.''

``The year 2000 was truly one of remarkable transition for the company. Tera Computer exited its development stage, and began commercial operations as a dramatically new entity with the acquisition of the Cray Research assets. Now, less than a year after we formed the combined company, we have laid the foundation for an industry-leading company that will provide the world's best products, technology pipeline and support infrastructure. We have never been more excited about the company's prospects, and we will continue to build on that success in 2001 as we prepare for the expected strong growth years ahead,'' Rottsolk concluded.

Financial Guidance

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

The company expects to report a profitable first quarter 2001, with total revenues in the range of $46-$48 million, assuming the successful completion of acceptance testing of a $21 million T3E system by the Department of Defense--a 30-day test which is due to be completed in the second half of March. Gross product margins for the first quarter 2001 are expected to rebound to a range of 46 to 48 percent. Service margins are expected to be in the same range. The June 2001 quarter is expected to be down from these levels, with revenues expected in the range of $31 to $35 million. The second half of 2001 is expected to show renewed revenue strength as the Cray SV1ex, Cray SuperCluster® and Cray MTA-2 products come on line.

For the full year 2001, the company expects total revenues in the range of $170 to $185 million, depending on the successful introduction of new products and continued strength of legacy products. Service revenues are expected to be approximately $80 million, with product revenues making up the remainder. These revenue expectations do not include any contribution from the NEC agreement. Assuming the closing occurs as anticipated in the second quarter, the company would expect some slight revenue in the second half for the NEC SX-5 vector supercomputers, with more substantial revenues from NEC products in 2002 and beyond. Gross product margins are expected to decline somewhat over the year, as new products, such as the SuperCluster®, carry lower margins. Service margins are expected to be slightly down from 2000 levels, given the expected lower revenues as the company de-installs older Cray vector systems. Total R&D expenditures are expected to decrease from the 2000 run rate, with planned expenses in the range of $50-54 million, with the highest levels anticipated in the first half of the year, as major prototyping and other non-recurring engineering expenses for the Cray SV1ex, Cray MTA-2 and Cray SV2(TM) are incurred. Sales and Marketing expenses are expected to be in the range of $16-18 million for the year, and General & Administrative expenses are anticipated to be in the range of $7-8 million. The company expects to report a net profit from operations and to be cash flow positive for the full year at these revenue and expense levels.

Investor Conference Call

Management will discuss the results and the company's outlook and hold a question and answer session for investors today, March 5, 2001, at 1:30 p.m. Pacific / 4:30 p.m. Eastern. To participate, call 212-231-6046 a few minutes ahead of time (no passcode required). If you are unable to participate, a replay will be available from 3:30 p.m. Pacific on March 5 for 48 hours. To access, please dial 1-800-633-8284, or 1-858-812-6440 (international), reservation number 18005759. In addition, the replay will be available for 90 days via the Internet at www.streetevents.com.

About Cray Inc.

Cray Inc. designs, builds and sells high-performance MPP, vector processor and general-purpose parallel computer systems. The company has leading edge technology, multiple product platforms, nearly 900 employees, a $2 billion installed base of approximately 600 computers worldwide, major manufacturing and service capabilities and extensive global customer relationships. Cray believes its Multithreaded Architecture, Cray T3E, Cray SuperCluster and Cray SV2 systems together represent the future of supercomputing. Go to www.cray.com for more information on the company.

Safe Harbor Statement

This press release contains forward-looking statements. There are certain factors that could cause Cray's execution plans to differ materially from those anticipated by the statements above. Among such factors are the removal of the antidumping order currently being applied to sales of Japanese supercomputers in the U.S., government support and funding for supercomputer systems, expected delivery and acceptance times, and timely availability of commercially acceptable components from third party suppliers. For a discussion of such risks, and other risks that could affect Cray's future performance, please see ``Risk Factors'' in Cray Inc.'s most recent SEC Form 10-Q.

Note to Editors: Cray and SuperCluster are registered trademarks, and Cray T3E, Cray SV1, Cray MTA and Cray SV2 are trademarks, of Cray Inc. All other trademarks are the property of their respective owners.


CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

December 31, December 31,
1999 2000
-------------- ----------------

ASSETS
Cash and cash equivalents $ 11,201 $ 5,387
Accounts receivable 641 25,159
Inventory, net 4,513 23,637
Spares inventory, net 19,565
Property and equipment, net 5,829 26,496
Intangible assets, net 186 30,154
Other assets 1,040 5,102
-------- --------
TOTAL $ 23,410 $135,500
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable 4,366 15,953
Accrued payroll and
related expenses 2,147 11,829
Deferred revenue 68 17,666
Current portion of
warranty reserve 17,517
Investor notes payable 7,553
Other current liabilities 1,110 13,670
Non-current liabilities 1,412 14,498
Shareholders' equity 14,307 36,814
-------- --------
TOTAL $ 23,410 $135,500
======== ========



CRAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

Three Months Ended Twelve Months Ended
December 31, December 31,
1999 2000 1999 2000
--------- --------- --------- ----------
REVENUE:
Product $ 300 $ 9,521 $ 1,671 $ 46,617
Service 43 23,847 123 71,455
--------- --------- --------- ----------
Total
revenue 343 33,368 1,794 118,072
--------- --------- --------- ----------

OPERATING EXPENSES:
Cost of product
revenue 8,246 1,505 32,505
Cost of service
revenue 25 11,401 92 34,077
Research and
development 5,168 16,798 22,147 48,426
Inventory
obsolescense
charge 148 6,589
Marketing and sales 728 5,480 2,517 14,365
General and
administrative 1,437 2,478 3,091 7,033
--------- --------- --------- ----------
Total operating
expenses 7,506 44,403 35,941 136,406
--------- --------- --------- ----------
Loss from
operations (7,163) (11,035) (34,147) (18,334)

OTHER INCOME
(EXPENSE) 49 (902) (384) (447)

IMPUTED INTEREST
EXPENSE (234) (1,437)

AMORTIZATION OF
INTANGIBLE
ASSETS (1,751) (5,217)
--------- --------- --------- ----------
Net loss (7,114) (13,922) (34,531) (25,435)

Preferred stock
dividend (115)
--------- --------- --------- ----------
Loss per
common share $ (7,114) $ (13,922) $ (34,646) $ (25,435)
========= ========= ========= ==========
Loss per
common share,
Basic and
diluted $ (0.29) $ (0.41) $ (1.74) $ (0.78)
========= ========= ========= ==========
Weighted average
shares
outstanding,
Basic and
diluted 24,304 34,197 19,906 32,699
========= ========= ========= ==========