Analysts Say Cray Facing New Problems


Cray Research Inc., which suffered a big setback late last year when it lost computer expert Steve Chen, now faces problems due to apparent delays in introducing a new supercomputer considered vital to the company's future.

After a year's delay, the leading supercomputer maker is poised to debut within a month the "YMP" computer created by the highly respected Chen before he left the company. The powerful unit sells for a hefty $25 million.

A Cray spokeswoman said "the YMP schedule has not changed," but analysts have a different view.

Gary Smaby, a securities analyst with Piper Jaffray & Hopwood, located in Cray's hometown of Minneapolis, has said design problems with the YMP computer has delayed introduction of the machine by "more than a year."

"By missing the launch window on the YMP, Cray now faced product transition risks and slower growth in the 1987-1988 time frame," he said in a report.

Not Admitting Delays

"The company is not admitting to delays, but I think there have been some," said another analyst.

Some analysts attribute the delay in the YMP schedule to the departure of Chen last September. He left to enter a joint venture with International Business Machines Corp.

His departure raised concerns that Cray will face competition from a powerful adversary. IBM is currently not a factor in the supercomputer market, the most powerful computers used mainly in research.

Chen's departure in December sent Cray's stock falling $2.25 to $70.25. It had since rebounded, but news of the problems sent the stock sharply lower Friday, when it was trading down $4.125 at $75 in late activity.

Other analysts attributed the delays to YMP software problems--problems which some say led to the replacement in September of the company's top software designer.

Analysts expect Cray to sell only three or four of the new YMP computers this year. By next year, that could increase to as many as 20, although most expect only 10 to 12 to be sold.

Analysts say profit growth at Cray will likely slow from the approximate 18% pace of 1987, due mainly to the delay of the YMP.

Cray earned $113 million on revenues of $524 million in the first nine months of the year, an 11% increase in earnings from the same period in 1986.

Cray is also expected to cut the price of its existing XMP model, possibly by 30%. "A full XMP-4, now costing $16 million to $18 million, could be down to $12 million by year end (of 1989)," said one analyst.

But Smaby says Cray is currently making XMP models as fast as it can sell them. "I would not expect to see price cuts until the YMP becomes available in volume," he said.

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