Cray Stock Price Dives; Profit Forecast Blamed

The stock market’s persistent jitters hit Cray Research with a vengeance Tuesday, pushing down the supercomputer maker’s stock by nearly $9 a share following news that earnings and revenue for this year and next are expected to fall below initial Wall Street projections.

In heavy trading on the New York Stock Exchange, Cray shares plummeted $8.875 to close at $59.875, their lowest level since last October’s stock market crash.

Analysts attributed the steep drop--which reduced the Minneapolis company’s market value by 13%--to Cray’s confirmation Tuesday that its customers’ shift to more supercomputer leases, rather than outright purchases, would mean a weaker-than-projected financial performance in 1988 and 1989. That came a day after Cray reported a third-quarter profit that was off 37.4% from a year earlier.

According to Cray officials, revenues for both 1988 and 1989 are expected to rise by 10% annually, instead of the 20%-plus annual increases that analysts had projected for the world’s largest supercomputer maker. Cray had sales of $687 million last year.

In addition, the company said earnings for 1988 are expected to rise 5% to 7% over the $147 million posted last year, about half the increase analysts had estimated. Further, for 1989 earnings, Cray executives said they considered a 10% rise, “an aggressive” goal. Analysts had estimated at least a 20% increase in profits next year.

Analysts said Cray’s 1989 projection was the most devasting part of the message company executives delivered to financial analysts in a special conference call early Tuesday morning.

“It was very disappointing,” Patricia Laupheimer, an analyst with Shearson Lehman Hutton in New York, said of the company’s 1989 projections. “It was clear the company doesn’t feel very confident about the earnings growth in the immediate future.”

Nevertheless, some analysts remained confident that Cray--one of the nation’s brightest competitors in the technology race with the Japanese--has not lost its fundamental technological and business strength.

“The drop is not due to demand slackening off, production problems or worries that the company is losing its technical edge,” said Stephen Cohen, an analyst with Gartner Securities, a Connecticut brokerage firm specializing in technology stocks. “The earnings in 1988 and 1989 are going to be disappointing and the stock is accurately reflecting that.”

The cause of the slowdown, company officials acknowledged, is a shift by customers toward leasing Cray’s supercomputers, sophisticated machines that can cost as much as $22 million. The company said an estimated 30% of its expected 75 installations next year will be leased machines, compared to 20% of its 63 installations this year. Last year about 20% of the company’s 53 installations were leased.

Although leased machines generate a steady stream of cash over several years, they do not produce as much revenue immediately as a sale.

Company officials and analysts attributed the increased interest in leasing to Cray’s pending shipments of updated versions for its two major product lines. With the new models, the Cray-3 and the Y-MP on the immediate horizon, customers are keeping their options open by leasing rather than purchasing, Cohen said.

However, both Cohen and other analysts said the company might have avoided some of its current woes had it had it been able to meet its original shipment schedule for the Y-MP model.