Cray, The Grand Old Man Of Supercomputing (CRAY)

| About: Cray Inc (CRAY)

Cray, Inc (CRAY) announced yesterday that it was examining revenue issues from 2004 that might affect 2% or so of revenue and losses from operations. The market reacted badly and Cray dropped as low as $1.63. The stock has traded as high as $2.75 during the last year..

That was the bad news, but it seems there was some pretty good news buried a little further into the announcement. Preliminary Q4 05 revenues were $65 million and full year top line was $201 million. Q4 04 revenues were a little over $39 million and the full year came in at $149 million. Adjusted for EBITDA and stock-based compensation calculations, the company was at roughly a breakeven for the last quarter of 2005.

The preliminary results also indicated a significant improvement in gross margins and cash and cash equivalents, which rose to $46 million. The company has a $160 million market cap.

The outlook for 2006, particularly the second half, seemed quite good. Operating income for that period should be breakeven and EBITDA should be positive.

Cray is the grandfather of the supercomputer business, having started in the business in 1972. The engineering and scientific communities of major universities and governments still look to Cray for supercomputer expertise. The company has had some impressive recent customer wins with the U.S. military and scientific institutions and corporations in Korea, India and the UK.

These are likely to get better at Cray, and the disappointment over the restatement may offer a value to investors looking at the company, especially with the stock trading at well below one time annual sales.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of and chief executive of On2 Technologies, Inc.