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Cray, Inc. (CRAY)

F4Q07 Earnings Call

February 14, 2008 4:30 pm ET

Executives

John Snyder – Snyder Investor Relations

Peter J. Ungaro - President, Chief Executive Officer & Director

Brian C. Henry - Chief Financial Officer & Executive Vice President

Kenneth W. Johnson - Senior Vice President & General Counsel, Corporate

Analysts

James McIlree – Collins Stewart, LLC

Chad Bennett – Northland Securities

Glenn Hanus – Needham & Company

Sid Parakh - McAdams Wright Ragen

Vic Kumar – Soundpost Partners

Presentation

Operator

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Cray, Inc. fourth quarter and year end 2007 conference call. (Operator Instructions) This conference is being recorded today, Thursday, February 14th of 2008. At this time I’d like to turn the presentation over to John Snyder. Please go ahead, sir.

John Snyder

Good afternoon. I’d like to thank everyone for joining us today. Participating from Cray are Peter Ungaro, President and Chief Executive; Brian Henry, Executive Vice President and Chief Financial Officer; and Ken Johnson, Senior Vice President and General Counsel. This call is being broadcast live on the Internet and recorded for replay purposes. A replay will be available shortly after the call and you can access the replay by dialing 800-405-2236. International dialers can call 303-590-3000. You must then enter the access code 11108526 followed by the # sign. A replay will also be available in the Investor Relations section of the Cray website for 180 days at www. Cray.com and during the course of this call management will make projections or other forward-looking statements regarding potential future events or the financial performance of the company. We want to caution that you such statements are current expectations and actual events or results may differ materially. Please refer to the documents which the company files from time to time with the Securities and Exchange Commission. They contain and identify important risk factors that could cause actual results to differ materially from those contained in the projections or forward-looking statements.

With that, I’d now like to turn the call over to Peter Ungaro.

Peter J. Ungaro

Welcome to everyone joining us on the call today. I’d like to start with some comments around our 2007 results and progress towards key focus areas for the year. Brian Henry will then discuss 2007 financial results along with our outlook for 2008. Following Brian’s comments I’ll discuss our priorities going forward and then we’ll open up the call for Q&A.

We made good progress in 2007 despite some challenges. On the positive side we improved our bottom line results and gross margins increased substantially both year-over-year and on a historical basis. These improvements were driven primarily by our product gross margins where we benefited from the improvements and the capabilities and price performance of our systems and ultimately the overall value of our systems against our competitors. This has been a major area of focus for us over the past couple years and an area where we have executed. Likewise we introduced the Cray XT5 Family of products at the Supercomputing Conference in November a line of products that offers the first truly hybrid architecture available in the marketplace. We had great customer response and excitement to the announcement and the challenge now or opportunity will be to leverage this excitement into new customer wins which we are busy working on as we speak.

We had a number of great customer wins and acceptances in 2007 both internationally and domestically and across our entire product portfolio. These wins include HECToR where we installed a flagship Supercomputing for the UK academic community. Housed at the University of Edinburgh in Scotland the Cray XT4 Supercomputer will assist scientists and researchers to satisfy the most demanding of scientific goals and push the boundaries of discovery. There has been tremendous excitement around this machine in the UK and at Cray given both the importance of the HECToR program and the performance of the machine which as exceeded expectations. For starters we delivered the machine in early August and passed all acceptance tests by mid-September. This is a tremendous accomplishment given the sheer size of the system and it has been great for Cray and great for the customer.

You might recall also that HECToR is a multi-phase project. The next phase which will provide hybrid capabilities combining the Cray XT5h Vector Supercomputer previously code named Black Widow with their existing Cray XT4. This is scheduled for the second half of 2008. We and the customer are very excited to keep pushing this program forward and to continue to enable scientific discovery in the UK. Part of the HECToR success can be attributed to the National Energy Research Center or NERSC in Berkley, California where we installed a Cray XT4 system with over 100 teraflops of performance and nearly 20,000 processor cores increasing the capability of the facility by almost a factor of 10. NERSC received the first large XT4 system with the Cray Linux environment and we ended up partnering close with NERSC in the first large bring up of that system. The partnership there has really been exceptional. NERSC is one of the most renowned supercomputing centers in the world and they choose Cray over their incumbent and other competitors because of the high sustained performance and scalability of our systems both required to address a rigorous workload in their production environment. NERSC has several thousand users who are now able to tackle the most challenging problems in the world of science and the Cray XT4 will enable them to conduct more frequent and increasingly detailed simulations and analyses of massive data sets.

Read the rest of this transcript for free on seekingalpha.com