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 Cray 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 the company's 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", stated 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."

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, Cray anticipates 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 include:

• 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 has 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.