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Cray Research Scrambles Develop Software After DOE Cancels Deal

March 28, 1993

MINNEAPOLIS (AP) _ Cray Research Inc. thought it had a swords-to-plowshares plan the federal government couldn’t refuse.

Cray, the world’s dominant supercompuer maker, would work with the nation’s best military scientists to develop computer software for the U.S. automotive, aerospace and energy industries in a $72 million effort involving a dozen other American companies.

In October, the U.S. Department of Energy signed a letter of intent with Cray to split the cost of the three-year project.

But earlier this month, the department abruptly canceled the deal, leaving Cray scrambling to find another way to develop software that company officials say customers are demanding and is crucial to keeping U.S. industry competitive globally.

″We were stunned, because we had no inkling that the agreement was in danger,″ said Steve Conway, a Cray spokesman.

The decision set a ″chilling precedent for any high-technology company that might want to submit a significant and unique proposal to the DOE technology transfer program,″ Cray Vice President Bob Ewald wrote in a memo to employees.

It was yet another setback for Cray, which in the past year has cut 650 workers, closed a plant and frozen wages in a major restructuring. The company which now has about 5,000 employees worldwide, last year lost $14.9 milion on revenue of $797.6 million, the first annual loss since Cray began selling supercomputers in 1976.

Cray, which has about two-thirds of the world’s supercomputing market, says it expects revenues to remain flat this year. But executives predict that cost cutting measures will return the company to profitability.

Industry analysts say Cray is on the right track, despite its recent troubles.

″I don’t see how they could possibly have done any better with the economy the way it was,″ said Dick Sherman, president of RCI Limited, a Minneapolis- based research firm.

″I think Cray is just going through a midlife crisis and trying to reposture and restructure itself. What’s happening to Cray is a lot better than what’s happening to other companies, like IBM,″ he said.

The best news, analysts say, is that Cray is moving aggressively into the small but growing market for ″massively parallel″ computers.

Such machines use hundreds of small processors - the brains of a computer - to work simultaneously on parts of highly complex problems. Conventional supercomputers solve problems in sequential order using a handful of larger processors.

IBM, Digital Equipment Corp. and other computer makers are also working on massively parallel machines, which are cheaper and far more powerful than the supercomputers pioneered by Cray.

Currently, however, little software is available for use with the machines.

Cray expected its joint venture with the DOE to produce software that would help move the new technology from the research lab to the marketplace.

Despite the project’s cancellation, Cray still plans to unveil massively parallel systems in the second half of this year. The company says it will find a way to develop the software - with or without government assistance - even if that means looking abroad for help.

″We hope we’re not forced into the position of partnering with entities overseas, but we must make this happen,″ Conway said.

Frank Parisi, Cray’s vice president for corporate communications, said it’s too early to tell how far software development will be set back by the government’s pullout.

″It’s a bump in the road,″ he said. ″The process is slowed, but it’s not going to put us out of business.″

The company’s deal with the government called for the DOE to spend $21 million on two Cray supercomputers that would have been used to develop the software.

Parisi said Cray would not have profited from the hardware sale, and while Cray would have had first access to the software, other companies could have been able to use it.

″The ultimate goal was to help boost U.S. industrial competitiveness,″ Conway said.

Everet Beckner, the acting assistant secretary of energy, said the details of Cray’s proposal weren’t known when the company and the DOE signed a letter of intent.

Later, he said, department officials determined the government couldn’t buy the computers without first entertaining competitive bids.

Although federal agencies are under tighter budgetary constraints, Beckner said money wasn’t a factor in the decision. In fact, he said DOE plans to go ahead with the program, but will ask other companies to submit bids.

The DOE also denies that it was pressured by Cray’s competitors to change its decision.

But Howard Richmond, director of high performance computing for the Gartner Group in Stamford, Conn., a supercomputing research group, believes the pressure was a factor.

″With $72 million at stake, all of a sudden the other vendors in the parallel market screamed that they wanted a part of the hardware sale,″ Richmond said. ″It’s a classic case of bureaucrats that got cold feet.″

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