Standing on the corner of Fourth and Madison in downtown Seattle, you’d never guess what people are building in the sedate office tower that looms over the Bartell Drugs store.
It happens to be the headquarters of Cray, a legendary computing company producing some of the most advanced and powerful machines on Earth.
Cray supercomputers are mostly used by government labs and universities to run complex programs that model weather patterns, simulate nuclear explosions and other tasks beyond the reach of mortal computers.
These systems may cost $20 million to more than $100 million and fill a room the size of a gymnasium.
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A strong year selling the complex, powerful products and services helped lift Cray to the No. 2 spot in The Seattle Times’ 22nd annual ranking of publicly traded companies based in the Northwest
Massive systems used for advanced research have been Cray’s specialty since computing pioneer Seymour Cray started the company in 1972, but it’s a limited market with sporadic sales.
Service and custom-engineering contracts provide steadier income, but Cray has been trying hard to diversify its business and expand the market for its exotic hardware.
Cray has added data-storage products, and it’s trying to capitalize on the rise of “big data” in corporate computing with new products that help companies quickly analyze enormous collections of data.
The company also is expanding its lineup of “midrange” supercomputers, which start at about $500,000. Models introduced last month fit into a closet-sized cabinet and are cooled with air, rather than the liquid coolants used on higher-end machines.
“We’ve really expanded the product portfolio that we have, making Cray more relevant and tractable for a lot of customers around the world that traditionally haven’t been Cray customers,” Chief Executive Peter Ungaro said.
Cray also is expanding itself. The company has added about 100 employees a year in recent years and now has a staff of about 1,000 people, including about 150 at its Seattle headquarters. It also has major offices in California, Minnesota and Wisconsin. Manufacturing of its computers is done in Wisconsin and California.
Cray started in Chippewa Falls, Wis., then merged with California-based Silicon Graphics in 1996. Four years later, Cray was acquired by Seattle-based Tera Computer, which renamed itself Cray.
Ungaro is a Washington State University graduate who previously worked for Cray’s chief competitor. He was in charge of IBM’s sales of high-performance computing products before he came to Seattle to lead Cray’s sales, marketing and services group in 2003. Two years later he became chief executive.
Other competitors include Hewlett-Packard and NEC, though IBM and Cray dominate the uppermost tier of computing.
Last fall the Cray “Titan” system at Oak Ridge National Laboratory was named the world’s fastest supercomputer, bumping IBM’s “Blue Gene/Q” system from the top of the Top 500 list of the world’s fastest supercomputers. Titan took the crown by achieving 17.59 petaflops (quadrillions of calculations) per second.
Perhaps more important to Ungaro was that Cray also achieved record earnings last year. Sales rose 78 percent, to $421 million. Profit was $161.2 million, up from $14.3 million in 2011.
A highlight of the year was completion of the company’s largest ever supercomputer, the “Blue Waters” system at University of Illinois that was used to simulate Hurricane Sandy.
The company also benefited from a 29 percent surge in the supercomputing market last year, according to research firm IDC.
The overall market for high-performance (HPC) computing systems should continue growing about 7 percent a year through 2016, reaching sales of more than $14 billion, according to IDC.
Cray thinks these conditions will help the company reach sales of $500 million this year.
“I feel we’re going to grow at least twice what the market grows at,” Ungaro said.
But investors must take a long view. The company has lumpy earnings, with slow periods followed by large sales.
Over the past few years, Cray has had deals worth more than $100 million, but it’s not clear that’s a normal pattern. That makes it difficult to predict its growth and whether it will track with IDC’s forecast for the overall industry, said Sid Parakh, an analyst tracking Cray at McAdams Wright Ragen in Seattle.
Parakh said the best way to look at Cray is on a three-year rolling average — from that vantage its growth rate concurs with IDC, he said.
Investors buoyed by the trends and Cray’s moves into the hot categories of storage and big data were disappointed last month iwhen Cray reported modest earnings and narrower margins, attributed largely to the falling yen.
Parakh thinks the market has lots of potential, but he has a “hold” rating on Cray.
Ungaro sees a big opportunity for its entry-level systems, including the XC30-AC it unveiled in May.
The market for such midrange systems — priced at $500,000 to $3 million — is about $3 billion a year, three times larger than the market for top-end systems, he said.
Prices are staggering compared to a “normal” computer, but Ungaro said it can be a prudent purchase. Supercomputers may enable companies to build computer models that speed the testing and development of new products. Boeing, for instance, used a Cray computer to model airflow over the wing of its 787.
Other customers include GE, the Institute for Systems Biology and major banks and energy companies.
“At the end of the day,” Ungaro said, “our business is going to be successful based on how successful our customers are with our systems.”
Brier Dudley: 206-515-5687 or email@example.com