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Cray Inc. Message Board

  • mondayfriday99 mondayfriday99 Apr 26, 2012 10:42 AM Flag

    Cray: Intel buys in desperation! huge premuium

    And Cray still has use of their own patent technology... gets chips "super" cheap. I cannot think of a better senero for Cray... this is huge.

    "Chipmakers have been busily adding cores to their servers, but getting those cores to communicate without creating bottlenecks is a huge problem. And as the Web scales to reach billions of people, who are spending more time using online services, the infrastructure supporting those services is reaching a breaking point. Data centers that used to be the size of a corner gas station are now the size of a WalMart distribution center. Inside those centers are more servers containing many, many more CPU cores.

    But at that scale communications between servers and between compute cores within servers are a problem. That’s why the IT industry is so excited about the software-defined networks (sometimes called fabrics) and OpenFlow protocols that will help make communications between servers scale. And inside servers, a similar level of virtualization and a focus on fabrics is gaining attention: What’s happening at the data-center scale is also happening inside the box.

    For example, SeaMicro, the server maker that was recently acquired by AMD, built a 1.28 terabit compute fabric inside its server, which contains 256 cores. One SeaMicro box could replace 500 machines from five years ago and run at 96 percent of the power consumed by the old machines, according to a presentation the company made in January when it launched its most recent boxes. Another startup in the server space, Calxeda, which is building ARM-based servers with HP, is taking a similar approach, spending its R&D efforts on the fabric the handles communications between the many ARM chips inside its box.

    Now that AMD has bought SeaMicro, which was using chips from Intel, the world’s largest chip company might be looking to make its own play in the webscale server market (as well as beef up its ability to connect a lot of cores for the high performance computing market that Cray serves). In the past Intel has said webscale will be only 10 percent of the total server market, but I think it’s wise to ensure it has a fabric technology of its own now that AMD has SeaMicro and Calxeda is in bed with ARM, Intel’s rival on a growing number of fronts.

    Hence buying the engineers, IP and expertise of Cray, which pioneered interconnect technology that allows thousands of chips to communicate at high speeds. Chips are always going to be important inside servers, but now it’s time for fabrics to shine too. It’s a topic we’re going to be talking more about at our Structure 2012 event with SeaMicro’s former CEO Andrew Feldman and AMD’s Lisa Su."


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    • Typo: That 360 million should be 460 million.

    • If they earn 72c this year, and their new businesses are as successful as they appear to be, what should their stock price be?

      If we remove the $7 in cash after Intel (really much more) and take out roughly say 1c for the current cash impact of cash on eps, the operating activities of the business are generating 71c in eps this year. At a market price of $9 per share, removing cash, the business is valued at $2. Dividing this by 71c in eps, the effective P/E is about 3.

      That's kinda silly, even for a lumpy business. In any case, if the new businesses take off that would remove part of the lumpiness.

      Even something low like (say) a P/E of 10 gets you to about $7 for the operating activities of the business. Add that to the $7 of cash post Intel and you get $14 for the stock price.

      Before the Intel announcement, the stock was at around $7, trading at a P/E of around 15. If I apply this 15 P/E to the 71c in earnings, I get around $11. Add back the conservative $7 in cash and I get $18.

      In almost every conceivable way that I can think of the stock looks dirt cheap. This thing's going to soar.

    • Based on the conference call, I think earnings estimates have to go up 65-85% percent this year, from 44c to 72c or 82c or even more.

      At the midpoint of their guidance, they'll have 40 million more in revenue than the average analyst estimate. At 40% gross margins and marginal increases in operating costs which I will ignore (and which they hinted at as being small) that's 16 million extra in operating profit. Take away 40% of this for phantom accounting income taxes and that's about 10 million in extra profit for the year. Dividing this by 36 million shares and that's 28 c more in earnings, about a 65% increase in diluted eps over average analyst earnings estimates this year.

      Similarly, if they hit 360 million, they get about 38 c more in eps, about an 85% increase in diulted eps over average analyst earnings estimates this year.

      Estimates could go even higher if the business continues to surprise or operational efficiency improves, but let's not go there right now. A 65 - 85% increase in average analyst estimates is a blowout.

    • I just finished listening to the conference call: Expect this thing to soar.

      Not only does a simple book value + Intel cash approach prove that the company is essentially free (floor of about $8.50), but their new investments are going gangbusters. That's some seriously impressive increase to guidance.

      If I tack on the benefit of the new businesses, I can easily justify around $13 and that too is being quite conservative.

      This thing might start trending in a very attractive way for an extended period: up and to the right, 45 degrees.

    • Here's one more way of looking at it.

      Consider the stock price before the transaction, of (say) about 7.50 a share. That's about 263 million. Take away the 167 million in book value and the future operating value of the company was $96 million (still comical). Add this to the approximately $300 million in book value after the transaction and the total value becomes 396 million or (say) 400 million, equivalent to a stock price of about $11.50.

      That's about a 30% return from today's price, with in my opinion very little risk.

      I did bump up my (smallish) position 25% more after the earlier post.

    • I love love love people who get angry! :)

      How do you suppose that this agreement won't significantly enhance Cray’s balance sheet and enhanced Cray further growth, profitability and shareholder value creation options?

      Their balance sheet was solid prior to the announcement (street seemed to agree). No debt v good margins... now even greater margins through... cost aggreement through Intel (details to be reveiled today).

      Hey... Stockmantyk. I love you!

    • Thanks for the insightful article.

    • > And that means earnings will be good? Are you dense?

      I know you are, but what am I?

      LISTEN to the yearend podcast.

    • was shocked by this announcement... held a short position and waited for some profit taking yesterday before finally covering... this blindsided me.

      Cray finally got their act together.

    • Haha, a "strong buy" over 8? You must be new to trading.

      • 2 Replies to stockmantykus
      • You insulted people while acting like a disturbed mental case. Which you must be.

        All the know it all pretense.

        This is why a_zz holes like you that have deeply rooted emotionally problems flock to these message boards.

        You no doubt have bWhich I doubteen shunned by family and friends through out your life and hold a menial job with hardly any accomplishments in your sad life.

        So a key pad is where you can act out your pathetic fantasies and frustrations all the wile losing your money if any that you might have.

        Doubt you do or ever had.

        Get lost charlie.

      • ARe you serious... son I've been trading for years... Sold this position short and long. But currently have covered my position and am definitely long through this earnings announcement. This is the best news I have heard from this position in years! Good luck

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