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Cray profits literally go up in smoke after electrical incident

Ready-to-ship systems canned after equipment failure at factory

By Simon Sharwood, 4 Aug 2016

Cray has revealed that its products' Q2 profits have literally gone up in smoke.

The company this week announced second quarter revenue of US$100.2m, down from $186.2m in 2015's corresponding quarter. That dip meant the company incurred a loss of $13.1m compared to last year's $5.8m profit.

Things aren't going to be much easier in Q3, due to “a very recent electrical smoke event caused by a failed manufacturing facility power component that will delay the Company's ability to deliver on some customer contracts in 2016, including an impact on anticipated third quarter revenue.”

On the company's earnings call CEO Peter Ungaro said the smoke “damaged five relatively smaller customer systems that were being tested and prep for shipping, and for which we expected to achieve acceptances before the end of the year including some in the third quarter.”

“Some of these systems were key pieces of larger customer solutions,” he added. “And as a result, their impact to our overall revenue outlook was more significant than just the value of the revenue type to those systems themselves. This event just happened and we're still evaluating the full extent of the impact, as well as our recovery plan. But I want to note that the majority of the loss is expected to be covered by insurance.”

The incident means Q3 revenue is therefore expected to be $80m, but the company expects a rebound for total 2016 sales of $650m, and overall profitability for the year. The smoke incident means between $20m and $60m of revenue will be wiped from 2016's books.

Smoke isn't Cray's only worry: “timing of new orders and the delays of key third-party components” are both cited as unhelpful factors it needs to overcome.

So is a slowdown in the HPC market that Ungaro said is forecast to end towards late 2017. Intel's not helped, either, as delayed chip shipments have seen customers wait before chatting to Cray about new kit.

On the upside, the company continues to do well in both new deals and with current customers, leading Ungaro to assert that once the overall HPC market bounces back, Cray should enjoy the clearer air on offer. ®

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