Total gross profit margin for the third quarter of 2009 was 39 percent compared to 51 percent in the third quarter of 2008. Product margin for the third quarter of 2009 was 23 percent and was negatively impacted by a $4.5 million write down (a 14 percent product margin impact) for inventory purchased in 2008 as part of a last-time buy. Service margin was 59 percent in the third quarter of 2009 and benefited from the execution of a contract that allowed us to recognize approximately $3.9 million of revenue for work performed in the prior quarter.

Operating expenses for the third quarter were $27.1 million compared to $22.3 million in the prior year period. As previously anticipated, third quarter 2009 operating expenses increased due to a delayed milestone on a co-funded development contract. Also included in third quarter 2009 results were non-cash items of $1.8 million for gross depreciation and amortization and $1.2 million related to stock compensation expense.

For the nine month period ended September 30, 2009, Cray reported total revenue of $195.8 million compared to $127.5 million in the prior year period, an increase of 54 percent. Net loss was ($3.6 million) or ($0.11) per share for the nine months ended September 30, 2009 compared to a net loss of ($14.8 million) or ($0.45) per share for the nine month period ended September 30, 2008. The 2009 year-to-date net income results include $4.6 million of stock compensation and $1.7 million of non-cash items related to recent changes in accounting guidelines applicable to our convertible notes.

As of September 30, 2009, cash and short-term investments totaled $67.8 million.

"We are building a strong base for our future, targeting profitable operations in 2009 following a major growth year in 2008. This has been driven by the performance of our XT5 supercomputers and custom engineering initiative," said Peter Ungaro, president and CEO of Cray. "We've made significant strides in expanding our addressable market by bringing out several new products and services to complement our high-end supercomputers -- with more planned over the coming months. All of this has put us in an excellent position to continue to be the technology leader in high performance computing and drive strong revenue growth into the future."

Outlook

For 2009, Cray now expects revenue in the range of $285 million, including about $90 million in service revenue. Overall gross profit margin for the year is expected to be approximately 36 percent. Operating expenses for 2009, assuming completion of a co-funded development milestone in the fourth quarter, are anticipated to be in the range of $98 million. Based on achieving this outlook, we anticipate a modest operating income for 2009. Results for the year include approximately $6 million of stock-based compensation.

For 2010, Cray expects its revenue to continue to grow, perhaps modestly, and expects to be profitable. Revenue is expected to be heavily weighted to late in the year, driven by the timing of new product introductions.

Actual results for any future period are subject to large fluctuations given the nature of Cray's business.

Recent Highlights

-- In September, Cray signed a multi-year, multi-phase contract to provide the Korea Meteorological Administration with a next-generation supercomputer. Valued at more than $40 million, the award is one of the largest in the area of operational numerical weather prediction in the world. Revenue from this contract is expected to be recognized in the second half of 2010.

-- In September, Cray's custom engineering group signed a contract for over $9 million with the U.S. government which includes the research and development of hardware and software technologies for a next generation compute system. Revenue for this contract is expected to be recognized over the next 12 months.

-- In August, Cray announced it had acquired the PathScale Compiler Suite assets from SiCortex. Cray plans to leverage some of the PathScale intellectual property to enhance Cray's own compiler offerings over time and will contribute other parts of the compiler to the open source community.

-- In October, Cray announced the appointment of Michael Piraino to the position of vice president, general counsel and corporate secretary. With 15 years of general counsel, executive, management and legal experience, as well as a background in engineering, Piraino will be responsible for directing Cray's legal affairs and providing advice on legal and policy issues to the company and its Board of Directors.

Conference Call Information

Cray will host a conference call today, Thursday, October 29 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss 2009 third quarter financial results. To access the call, please dial into the conference at least 10 minutes prior to the beginning of the call at 1-877-941-1465. International callers should dial 1-480-629-9678. 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 1-800-406-7325 and entering access code 4178009. International callers can listen to the replay by dialing 1-303-590-3030, access code 4178009. The conference call replay will be available for 72 hours, beginning at 4:30 p.m. Pacific Time on Thursday, October 29, 2009.

Upcoming Event

Cray will be attending the 2009 TechAmerica AeA Classic Financial Conference. Brian Henry, Executive Vice President and CFO will be presenting on November 2, 2009 at 9:40 a.m. Pacific Time. The presentation will be broadcast live on the internet. To listen to the webcast, go to the Investors section of the Cray website at http://investors.cray.com. An archived version of the webcast will be available approximately one hour after the presentation ends and will be available on the Cray website for 90 days.

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 within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, including, but not limited to, statements related to Cray's financial guidance and expected future operating results, its product development plans and its ability to expand and penetrate its addressable market. These statements involve current expectations, forecasts of future events and other statements that are not historical facts. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements and cause actual results to differ materially from those anticipated by these forward- looking statements. Factors that could affect actual future events or results include, but are not limited to, the risk that Cray does not achieve the financial results that it expects, the risk that customer acceptances are not received when expected or at all, the risk that Cray is not able to successfully complete its planned product development efforts in a timely fashion or at all, the risk that Cray is not able to negotiate, achieve and obtain acceptance of co-funded development milestones when or as expected or at all, the risk that Cray will not be able to expand and penetrate its addressable market as expected or at all and such other risks as identified in the Company's quarterly report on Form 10-Q for the period ended June 30, 2009, and from time to time in other reports filed by Cray with the U.S. Securities and Exchange Commission. You should not rely unduly on these forward-looking statements, which apply only as of the date of this release. Cray undertakes no duty to publicly announce or report revisions to these statements as new information becomes available that may change the Company's expectations.

Cray is a registered trademark and Cray XT5 is a trademark of Cray Inc.

                       CRAY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            (Unaudited and in thousands, except per share data)
                        Three Months Ended         Nine Months Ended
                           September 30,             September 30,
                          2009       2008           2009       2008
                        ---------  ---------      ---------  ---------
                                     (As                       (As
                                  Adjusted) (1)             Adjusted) (1)
REVENUE:
  Product               $  32,374  $  38,065      $ 133,937  $  81,606
  Service                  26,201     16,528         61,863     45,848
                        ---------  ---------      ---------  ---------
     Total revenue         58,575     54,593        195,800    127,454
                        ---------  ---------      ---------  ---------
COST OF REVENUE:
  Cost of product
   revenue                 24,784     17,266         93,381     45,681
  Cost of service
   revenue                 10,867      9,362         33,095     26,962
                        ---------  ---------      ---------  ---------
     Total cost of
      revenue              35,651     26,628        126,476     72,643
                        ---------  ---------      ---------  ---------
     Gross profit          22,924     27,965         69,324     54,811
                        ---------  ---------      ---------  ---------
OPERATING EXPENSES:
  Research and
   development, net        17,321     12,364         42,246     37,973
  Sales and marketing       6,279      6,135         18,683     17,365
  General and
   administrative           3,476      3,775         11,523     10,936
                        ---------  ---------      ---------  ---------
    Total operating
     expenses              27,076     22,274         72,452     66,274
                        ---------  ---------      ---------  ---------
    Income (loss) from
     operations            (4,152)     5,691         (3,128)   (11,463)
Other income (expense),
 net                          916       (432)          (575)       361
Interest income
 (expense), net                35     (1,763) (1)      (849)    (3,382) (1)
                        ---------  ---------      ---------  ---------
    Income (loss)
     before income
     taxes                 (3,201)     3,496         (4,552)   (14,484)
Income tax benefit
 (expense)                  1,094         87            977       (302)
                        ---------  ---------      ---------  ---------
    Net income (loss)   $  (2,107) $   3,583  (1) $  (3,575) $ (14,786) (1)
                        =========  =========      =========  =========
  Diluted net income
   (loss) per common
   share                $   (0.06) $    0.11  (1) $   (0.11) $   (0.45) (1)
                        =========  =========      =========  =========
  Diluted weighted
   average shares
   outstanding             33,689     32,661         33,491     32,507
                        =========  =========      =========  =========
(1) September 30, 2008 results have been adjusted for new guidance
    included in Accounting Standards Codification Topic 470, Debt,
    related to convertible debt instruments that may be settled in cash
    upon conversion
A summary of adjustments due to retrospective application to previously
reported results for the three and nine months ended September 30, 2008:
For the three months ended September 30, 2008:
                           As
                       Previously                     As
                        Reported   Adjustment      Adjusted
                        ---------  ---------      ---------
Interest expense, net   $    (341) $  (1,422)     $  (1,763)
Net income                  5,005     (1,422)         3,583
Diluted net income per
 common share                0.15      (0.04)          0.11
For the nine months ended September 30, 2008:
                           As
                       Previously                     As
                        Reported   Adjustment      Adjusted
                        ---------  ---------      ---------
Interest income
 (expense), net         $     750  $  (4,132)     $  (3,382)
Net loss                  (10,654)    (4,132)       (14,786)
Diluted net loss per
 common share               (0.33)     (0.13)         (0.45)
                       CRAY INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                       (Unaudited and in thousands)
                                            September  December
                                               30,        31,
                                              2009       2008
                                           ---------  ---------
                                                          (As
                                                        Adjusted)(1)
                      ASSETS
Current assets:
   Cash and cash equivalents               $  61,334  $  72,373
   Restricted cash                             3,500      2,691
   Short term investments,
    available-for-sale                         2,997      5,350
   Accounts and other receivables, net        43,792     95,667
   Inventory                                  51,696     80,437
   Prepaid expenses and other current
    assets                                     8,105     29,993  (1)
                                           ---------  ---------
       Total current assets                  171,424    286,511
Property and equipment, net                   19,403     18,396
Service inventory, net                         1,646      1,917
Deferred tax asset                             3,647      1,200
Other non-current assets                      14,688      5,837
                                           ---------  ---------
       TOTAL ASSETS                        $ 210,808  $ 313,861
                                           =========  =========
    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                        $  22,546  $  16,730
   Accrued payroll and related expenses       10,640     23,672
   Advance research and development
    payments                                       -     13,887
   Short-term convertible notes                  162     25,681  (1)
   Other accrued liabilities                  10,625     24,670
   Deferred revenue                           34,056     67,692
                                           ---------  ---------
       Total current liabilities              78,029    172,332
Long-term deferred revenue                     9,616     18,154
Other non-current liabilities                  3,379      3,170
                                           ---------  ---------
       TOTAL LIABILITIES                      91,024    193,656
Shareholders' equity:
   Common stock                              549,618    543,442  (1)
   Accumulated other comprehensive income      6,342      9,364
   Accumulated deficit                      (436,176)  (432,601) (1)
                                           ---------  ---------
       TOTAL SHAREHOLDERS' EQUITY            119,784    120,205
                                           ---------  ---------
       TOTAL LIABILITIES AND SHAREHOLDERS'
        EQUITY                             $ 210,808  $ 313,861
                                           =========  =========
(1) December 31, 2008 results have been adjusted for new guidance included
    in Accounting Standards Codification Topic 470, Debt, related to
    convertible debt instruments that may be settled in cash upon
    conversion
A summary of adjustments due to retrospective application to previously
reported December 31, 2008 balances:
                                              As
                                          Previously                 As
                                           Reported   Adjustment  Adjusted
                                           ---------  ---------  ---------
   Prepaid expenses and other current
    assets                                 $  30,023  $     (30) $  29,993
   Convertible notes                          27,727     (2,046)    25,681
   Common stock and additional paid-in
    capital                                  518,727     24,715    543,442
   Accumulated deficit                      (409,902)   (22,699)  (432,601)

Cray Media:
Nick Davis
206/701-2123
pr@cray.com

Investors:
Paul Hiemstra
206/701-2044
ir@cray.com

SOURCE: Cray Inc.

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