Total gross margin for the fourth quarter was 29.6 percent compared to 25.4 percent in the fourth quarter of 2006. Product margin was 25.9 percent compared to 22.1 percent in the prior year period. Fourth quarter 2007 service margin of 40.9 percent was in line with the company's target level.

Fourth quarter 2007 operating expenses were $21.9 million compared to $16.6 million in the prior year period. 2006 fourth quarter operating expenses benefited from the timing of various research and development contracts. Fourth quarter 2007 research and development expenses increased significantly over earlier 2007 quarters due primarily to the expiration of a significant development contract. Included in fourth quarter 2007 results were non-cash items of $3.8 million for depreciation and amortization and $0.6 million related to stock compensation.

For the full-year 2007, Cray reported revenue of $186.2 million and a net loss of ($5.7 million) compared to revenue of $221.0 million and a net loss of ($12.1 million) in 2006. Total gross margin for 2007 improved to 35.1 percent compared to 28.9 percent in 2006. Operating expenses, excluding restructuring and severance, increased to $75.0 million in 2007 from $69.8 million in 2006 due to increased research and development expense. Included in 2007 results were non-cash items of $13.4 million for depreciation and amortization and $3.2 million related to stock compensation.

Cash and short-term investment balances as of December 31, 2007 were $179.1 million, compared to $139.7 million as of September 30, 2007 and $140.3 million as of December 31, 2006. Cash benefited from strong collections.

"We made good progress in 2007 despite some challenges," said Peter Ungaro, president and CEO of Cray. "On the positive side, we improved gross margins significantly, had a tremendous year internationally, made solid strides toward our adaptive supercomputing vision with the introduction of the Cray XT5 family of products, and improved our balance sheet, ending the year with a record level of cash. However, we did not achieve our key priorities for the year of profitability and growth, due primarily to delays in component availability and product development."

Ungaro added, "Our goals and clear intent for 2008 are to be profitable and to grow. Our priorities to support these goals are to focus on product development initiatives, continue to win new business, and establish the basis of sustained profitability and supercomputing market leadership. With the addition of Ian Miller as senior vice president of sales and marketing and Jill Hopper as our new vice president of government programs, we have further strengthened our leadership team and continue to drive toward our goals."

Outlook

For 2008, while there is a wide range of potential outcomes, Cray targets profitability for the year and expects significantly improved revenue over 2007, weighted heavily toward the second half of the year. The company targets initial revenue from quad-core Cray XT4(TM) and hybrid Cray XT5h(TM) vector systems (previously code-named "BlackWidow") in the first half of 2008 and initial Cray XT5(TM) system revenue later in the year.

Cray expects 2008 gross margins to be similar to 2007 for the year, but will likely fluctuate significantly by quarter. The company anticipates increased operating expenses for the year. The increase is principally in the area of research and development, where net expense will likely increase by approximately 20% in 2008 compared to 2007.

Cray anticipates using cash over the course of the year, very heavily in the first two quarters, as the company builds inventory for planned customer shipments in the second half of the year.

2008 quarterly and annual results will be affected by many factors, including the level and timing of government funding, the timing and success of planned product rollouts, the timing and success of meeting certain product development milestones and the timing of customer orders, shipments, acceptances, revenue recognition and margin contribution. Cray expects quarterly results to fluctuate significantly.

Recent Highlights

• In February, Cray announced that Sandia National Laboratories has entered into an agreement for a processor upgrade to its "Red Storm" supercomputer from 124 teraflops (one trillion floating points per second) to 284 teraflops. Already one of the world's largest systems, this performance boost will allow researchers and scientists to run even higher resolution models to increase the accuracy of critical computer simulations.
• In January, Cray unveiled the new Cray XT4 supercomputer at Scotland's University of Edinburgh, marking the official launch of the United Kingdom's High-End Computing Terascale Resource (HECToR) project. Established to provide next-generation HPC service for the UK's academic community, HECToR will greatly assist researchers to satisfy the most demanding of scientific goals and push the boundaries of their ambitions.
• In December, Cray announced the selection of a 27 teraflops Cray XT4 supercomputer by the National Astronomical Observatory of Japan to aid scientists and researchers in the study of the origin of planetary systems and galaxies and the formation of stars and star clusters.
• In December, Cray announced its first order for the next-generation Cray XT5 supercomputer from the Danish Meteorological Institute, to be installed in the second half of 2008. The Cray XT5 system will be used to produce highly reliable numerical weather forecasts and to develop and run numerical models of the ocean and atmosphere for climate assessment.
• In November, Cray introduced its next-generation Cray XT5 family of supercomputers, marking a significant step toward Cray's vision of adaptive supercomputing. The Cray XT5 family incorporates and extends the performance and scalability benefits of the successful Cray XT(TM) line and continues to drive industry leadership with the first integrated hybrid supercomputer, the Cray XT5h system. The Cray XT5h system optimizes application efficiency and enables customers to tackle problems that cannot currently be solved in a single architecture system.
• In January, Cray announced the appointment of Jill Hopper to the position of vice president of government programs. With over 20 years of government affairs experience at the federal level, Hopper will be responsible for leading all government relations activities.
• In February, Cray announced the appointment of Ian Miller to the position of senior vice president responsible for sales and marketing. With more than 25 years experience in the enterprise computing market, Miller will be responsible for all Cray sales and marketing activities worldwide.

Conference Call Information

Cray will host a conference call today, Thursday, February 14, 2008 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss fourth quarter and full-year 2007 financial results. To access the call, please dial into the conference at least 10 minutes prior to the beginning of the call at 1-800-366-7449. International callers should dial 303-262-2141. To listen to the live audio webcast, go to the Investors section of the Cray website at http://investors.cray.com.

If you are unable to attend the live conference call, an audio webcast replay will be available in the Investors section of the Cray website for 180 days. If you do not have Internet access, a replay of the call will be available by dialing 1-800-405-2236 and entering access code 11108526. International callers can listen to the replay by dialing 303-590-3000, access code 11108526. The conference call replay will be available for 72 hours, beginning at 4:30 p.m. Pacific Time on Thursday, February 14, 2008.

About Cray Inc.

As a global leader in supercomputing, Cray provides highly advanced supercomputers and world-class services and support to government, industry and academia. Cray technology enables scientists and engineers to achieve remarkable breakthroughs by accelerating performance, improving efficiency and extending the capabilities of their most demanding applications. Cray's Adaptive Supercomputing vision will result in innovative next-generation products that integrate diverse processing technologies into a unified architecture, allowing customers to surpass today's limitations and meeting the market's continued demand for realized performance. Go to www.cray.com for more information.

Safe Harbor Statement

This press release contains forward-looking statements. There are certain factors that could cause Cray's execution to differ materially from those anticipated by the statements above. These factors include anticipated revenue subject to complex revenue recognition rules; fluctuating quarterly operating results; lower margins and operating results due to many variables including pricing pressure and increasing pressure on research and development expenses; the technical challenges of developing high performance computing systems, including potential delays in development projects, such as the quad-core Cray XT4, Cray XT5, Cray XMT, Cray XT5h and future systems; the level, timing and continuation of government funding

for supercomputer system purchases and research and development activities, including for our DARPA and Cray XMT programs; the successful passing of customer acceptance tests; significant reliance on third-party development service suppliers and parts suppliers, including their competitiveness with other suppliers and potential delays in the results of their development and in the availability of qualified parts from suppliers; the successful porting of application programs to Cray supercomputer systems; Cray's ability to keep up with rapid technological change; Cray's ability to compete against larger, more established companies and innovative competitors; and general economic and market conditions. For a discussion of these and other risks, see "Risk Factors" in Cray's most recent Quarterly Report on Form 10-Q filed with the SEC.

Cray is a registered trademark, and Cray XT4, Cray XT5, Cray XT5h and Cray XMT are trademarks of Cray Inc. All other trademarks are the property of their respective owners.

                        CRAY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            (Unaudited and in thousands, except per share data)
                                 Three Months Ended        Year Ended
                                    December 31,          December 31,
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
REVENUE:
   Product                      $  43,264  $  84,805  $ 133,455  $ 162,795
   Service                         14,166     16,619     52,698     58,222
                                ---------  ---------  ---------  ---------
      Total revenue                57,430    101,424    186,153    221,017
                                ---------  ---------  ---------  ---------
COST OF REVENUE:
   Cost of product revenue         32,053     66,025     89,475    124,728
   Cost of service revenue          8,367      9,630     31,247     32,466
                                ---------  ---------  ---------  ---------
      Total cost of revenue        40,420     75,655    120,722    157,194
                                ---------  ---------  ---------  ---------
      Gross margin                 17,010     25,769     65,431     63,823
                                ---------  ---------  ---------  ---------
OPERATING EXPENSES:
   Research and development, net   12,077      5,764     37,883     29,042
   Sales and marketing              6,323      6,386     22,137     21,977
   General and administrative       3,514      4,457     14,956     18,785
   Restructuring and severance        (58)       (39)       (48)     1,251
                                ---------  ---------  ---------  ---------
      Total operating expenses     21,856     16,568     74,928     71,055
                                ---------  ---------  ---------  ---------
      Income (loss) from
       operations                  (4,846)     9,201     (9,497)    (7,232)
Other income (expense), net           347       (177)     1,112     (2,141)
Interest income (expense), net      1,125       (438)     3,840     (2,095)
                                ---------  ---------  ---------  ---------
      Income (loss) before
       income taxes                (3,374)     8,586     (4,545)   (11,468)
Income tax (expense) benefit         (221)       146     (1,174)      (602)
                                ---------  ---------  ---------  ---------
      Net income (loss)         $  (3,595) $   8,732  $  (5,719) $ (12,070)
                                =========  =========  =========  =========
      Diluted net income (loss)
       per common share         $   (0.11) $    0.33  $   (0.18) $   (0.53)
                                =========  =========  =========  =========
      Diluted weighted average
       shares outstanding          32,242     28,971     31,892     22,849
                                =========  =========  =========  =========
* For the quarter ending December 31, 2006, diluted earnings per share
includes the impact of applying the "if converted" method on the Company's
convertible notes payable. Accordingly, interest expense of $770,000 has
been added back to net income to calculate diluted net income per share.
                        CRAY INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                       (Unaudited and in thousands)
                                                December 31,  December 31,
                                                    2007          2006
                                                ------------  ------------
                     ASSETS
Current assets:
   Cash and cash equivalents                    $    120,539  $    115,328
   Restricted cash                                    10,000        25,000
   Short term investments, available-for-sale         48,582             -
   Accounts receivable, net                           23,635        44,790
   Inventory                                          55,608        58,798
   Prepaid expenses and other current assets           4,120         2,156
                                                ------------  ------------
      Total current assets                           262,484       246,072
Property and equipment, net                           17,044        21,564
Service inventory, net                                 2,986         4,292
Goodwill                                              65,411        57,138
Deferred tax asset                                       512           722
Intangible assets, net                                 1,181         1,404
Other non-current assets                               6,284         6,311
                                                ------------  ------------
      TOTAL ASSETS                              $    355,902  $    337,503
                                                ============  ============
     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                             $     14,148  $     22,450
   Accrued payroll and related expenses               12,023        17,411
   Advance research and development payments          29,669        21,518
   Other accrued liabilities                           7,488         5,121
   Deferred revenue                                   48,317        43,248
                                                ------------  ------------
      Total current liabilities                      111,645       109,748
Long-term deferred revenue                            11,745         2,475
Other non-current liabilities                          4,310         3,906
Convertible notes payable                             80,000        80,000
                                                ------------  ------------
      TOTAL LIABILITIES                              207,700       196,129
Shareholders'  equity:
   Common stock                                      513,196       507,356
   Accumulated other comprehensive income             13,562         6,855
   Accumulated deficit                              (378,556)     (372,837)
                                                ------------  ------------
      TOTAL SHAREHOLDERS' EQUITY                     148,202       141,374
                                                ------------  ------------
      TOTAL LIABILITIES AND SHAREHOLDERS'
       EQUITY                                   $    355,902  $    337,503
                                                ============  ============

Cray Media:
Erin McGhee
206/701-2107
pr@cray.com

Investors:
Victor Chynoweth
206/701-2094
ir@cray.com

SOURCE: Cray Inc.