By Bill Rigby
SEATTLE, Oct 20 (Reuters) - "Big data" means big computers,and good news for Cray Inc.
The pioneer of supercomputers in the 1970s stood on thebrink of obscurity 20 years ago but is now surging back toprominence. Its shares have almost doubled over the past 12months.
The explosion of data - measuring weather, traffic, healthand countless other areas - coupled with a desire to teasemeaning out of it, demands greater computing power than isaccessible via standard machines.
"The assumption was that supercomputers were cliche fiveyears ago. People thought, 'I can run my simulation on mylaptop'," said Barry Bolding, a Cray vice president, at thecompany's Seattle headquarters last week. "That may have beentrue, so long as the data associated wasn't growing as well. Butraw data is being created in exabytes as we sit here. More datameans bigger computer, bigger computer means more data."
Experts estimate that 2.5 exabytes - or 2.5 billiongigabytes - of data are now generated every day, and the world'scapacity to store that data is doubling every 40 months, whichall plays to Cray's strengths.
A basic Cray cabinet costs $500,000 and up and is roughlythe size of a refrigerator. Big customers can group 200 or moreinto massive supercomputers worth hundreds of millions ofdollars, such as "Titan" at the U.S. Department of Energy's OakRidge National Laboratory.
Titan, completed by Cray last year, is the world'sthird-fastest supercomputer, takes up the size of a basketballcourt and can perform more than 20,000 trillion calculations asecond.
To be sure, most companies will never need that scale, orcan process what they need through multiple machines running intandem on a high-speed network or in the cloud, which for manyprojects works out cheaper and more power-efficient.
What makes supercomputers different is that they can make ahuge number of interconnected calculations at the same time,rather than a consecutive list of unconnected calculations,which makes them good for running complex simulations and miningunrelated data.
For example, weather apps on smartphones are based on vastmodels run by research agencies on supercomputers. Financialfirms can detect online fraud or cybersecurity breaches inseconds rather than days by using supercomputer models, whichwould take days on standard set-ups.
"Big data is a new term, but arguably the supercomputermarket was the original home of big data, and Cray has beendealing with it forever," said Steve Conway, an analyst at techresearch firm IDC.
MARKET ON FIRE
The Seattle-based company, with just over 900 employees anda market value of around $940 million, has changed ownershipseveral times but was started in 1972 by Seymour Cray, the"father of supercomputing."
With a recent resurgence in supercomputers, Cray isgarnering Wall Street's attention. This June, it sold one of itsnew XC30 supercomputers to the European Centre for Medium-RangeWeather Forecasts for $65 million, nabbing a contract from along-time IBM customer.
That sort of deal is piquing investor interest. Wall Streetanalysts are expecting revenue of $519 million this year, up 23percent from 2012, with a gross profit margin around 34 percent.Its shares are up 91 percent over the past 12 months while rivalSilicon Graphics International Corp's are up 90 percent.Cray is now richly valued, with a share price 36 times estimatedearnings for the next 12 months, compared with 19 times for SGI.
The global market for computers costing more than $500,000is on a tear, according to IDC, having more than doubled to $5.6billion in 2012 from $2.7 billion in 2008.
The whole market for high-performance computing (HPC) -essentially any machine bigger than a desktop used for intensecomputation - is forecast to grow 7 percent a year through 2017,well ahead of the stagnant business server market.
The U.S. government directly or indirectly accounted fortwo-thirds of Cray's revenue last year. But the company isreaching out to new customers interested in big data. Last yearit set up a new unit called YarcData - Yarc is Cray backwards -to focus on analyzing huge amounts of information and teasingout unseen patterns in a process known as graph analytics.
"Unstructured databases are becoming more prevalent,gathering raw data from everywhere," said Cray's Bolding. "Nowyou start asking very complex questions, and it starts to createlinks between sets of data."
The YarcData unit is helping the U.S. government detectfraud patterns in Medicare and Medicaid payments. Private sectorcustomers include medical research group Mayo Clinic and severalfinancial services, life sciences and telecommunications firms,which Cray cannot name for contractual reasons.
New efforts are working and should boost revenue over time,said Sid Parakh, an analyst at fund firm McAdams Wright Ragen.
"This is not a commodity market. It takes years ofexperience," said Conway at IDC. "It's easy to build a bigcomputer, but it's not easy to build a big computer that works."
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