Cray Could Provide Investors With Cray-Cray Returns
Cray's second quarter was good, its third quarter should be better, and subsequent quarters should reveal great things about the company. Hence, there is huge potential for investors in the company.
The optimism about Cray's future arises from two factors. First, the entire High Performance Computing, or HPC, market is growing at an impressive rate, having grown from generating $9.5 billion in global revenues in 2010 to just over $11 billion in global revenues in 2012. That growth rate seems to be just the tip of the iceberg, as many organizations have started seeing real needs for supercomputing.
In one of its studies, IDC, a tech research firm, found that "97% of companies that had adopted supercomputing said they could no longer compete or survive without it." The rate at which governments of various countries launch projects that need firsthand supercomputing shows just how bright the future is for supercomputing.
The task for investors is to unearth the companies that would benefit the most from the impending growth, which is where the second cause for optimism about Cray arises. Cray has an effective management structure in place, which is enough to position it as a major player in the growing HPC market. Let's briefly look into the things that should make Cray attractive to investors.
Solid business core
One thing that's impressive about Cray is its strong sales pipeline, as pointed out in this article by Evan Niu, a fellow Fool. So far this year, Cray has landed at least 10 new deals, all from big organizations. These organizations include European Centre for Medium-Range Weather Forecasts, Engineering and Physical Sciences Research Council, UK, and Japan's Railway Technical Research Institute, among others.
The fact that Cray has the U.S. government as its biggest customer tells us how strong, reliable, and effective Cray's supercomputers are (Cray generated more than half of its 2012 revenue from the U.S. government). All these are made possible because Cray has identified its competitive strengths and leveraged them well. Cray knows its strengths lie in data analytics, storage, and manufacture of enterprise-class systems.
Looking forward, the opportunity is even greater for Cray, with IDC forecasting that global economy in HPC will grow by about 7% each year over the next five years. As more supercomputing is done, the need for analysis and data storage will be greater (this is one of Cray's biggest strengths). IDC believes that storage and management of data is one of the major challenges of HPC, and Cray is in a position to maximize this niche.
Cray is equipping itself to solve this problem, as it hired a number of key individuals from SystemFabricWorks in 2012, a move that gave birth to the complete Lustre storage for X86 Linux clusters, launched in June. The product gives Cray a competitive edge in the HPC storage space. The product is a stand-alone storage product, so customers don't have to buy a Cray supercomputer before they can access Cray's expertise in Big Data.
Solid business core evidenced by growing market share