Cray (CRAY) Q1 2019 Earnings Call Transcript

Cray (CRAY)
Q1 2019 Earnings Call
May. 07, 2019, 4:15 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Paul Hiemstra

Thank you. Good afternoon. I'd like to thank everyone for joining us today. Participating from Cray are Peter Ungaro, president and chief executive officer; and Brian Henry, executive vice president and chief financial officer. Today's press release is available on the Investor Relations section of our website at www.cray.com. This call is being broadcast live on the Internet and recorded for replay purposes.

A telephonic replay will be available shortly after the call. You can access it by dialing 1 (855) 859-2056. International callers can dial 1 (404) 537-3406. You must then enter the access code 3849985.

A replay will also be available in the Investor Relations section of the Cray website for 180 days. I'd like to remind each of you that today's conference call will contain forward-looking statements that are based on our current expectations. Forward-looking statements include statements about our financial guidance and expected future operating results, our product development, sales and delivery plans, the future growth of markets for our products, our ability to expand and penetrate our addressable market and other statements that are not historical facts. These statements are only predictions and actual results may materially vary from those projected. Please refer to Cray's earnings press release stated today and quarterly report on Form 10-Q for the period ended March 31, 2019. The current report on Form 8-K describing the Oak Ridge National Laboratory award filed today, as well as Cray's documents filed with the SEC from time to time concerning factors that could affect the company and these forward-looking statements. Our presentation includes certain non-GAAP financial measures in an effort to provide additional information to investors.

Non-GAAP measures other than non-GAAP outlook have been reconciled to their related GAAP measures in accordance with SEC rules. Our non-GAAP measures adjust for certain non-cash, unusual and infrequent items included in our GAAP results. Typical adjusting items include stock-based compensation, amortization of purchased and other intangibles and purchase accounting adjustments. When applicable, we also adjust our book tax provision for certain items, including the impact of non-cash items, such as benefits principally related to our net operating loss. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures and a discussion of our non-GAAP outlook in our earnings press release, which is posted on our website, and which is included with a related 8-K furnished to the SEC. With that, I would like to turn the call over to Peter Ungaro.

Peter Ungaro -- President and Chief Executive Officer

Thanks, Paul, and thank you all for joining the call today. We're here in Oak Ridge, Tennessee as we just finished our big announcement regarding today's exascale award. I'll begin with a few quick comments on our first-quarter performance and the announcement. Brian will then take you through our financial results and outlook, and I'll wrap up by discussing our focus areas for the rest of the year, and then open the call for Q&A. We got off to a solid start to the year with revenue for the quarter coming in just about the target we previously laid out and more importantly, solid bookings for our future growth.

We completed multiple supercomputing and storage installations during the first quarter, including at the U.S. Army Corps of Engineers, at a weather forecasting center in the Philippines and at several government customers around the world. We also had a solid quarter on the commercial front with revenue from commercial customers making up more than 20% of our total revenue for the quarter. This is a great continuation of our strong commercial growth from last year. In March, we had a major win when our Shasta system was selected to be the first exascale supercomputer in the U.S. This new system, called Aurora, will be delivered to the Department of Energy's Argonne National Laboratory and will consist of more than 200 Shasta cabinets featuring next-generation Intel technology, as well as our unique system software stack and Slingshot interconnect.

Aurora is scheduled for delivering in 2021 with acceptance plan for 2022. We're a subcontractor to Intel on Aurora and are working to finalize our contract with them, which will be valued at more than $100 million to Cray. We are extremely excited to partner with Argonne and Intel to build the first system to break the exascale barrier. Since we'll be discussing it more going forward, for those of you that don't know, the term exascale refers to supercomputers that deliver an exaFLOP in performance, which is a quintillion or a billion billion double precision floating point operations per second. It is an incredible leap forward in overall performance, more than 5 times faster than the fastest systems of today, and one that will enable major advancements benefiting society and almost every industry improving all forms of simulation, modeling, AI and analytics. This is all based on our Shasta system, which is an entirely new design built for the next generation of supercomputing.

One that will leverage data center workloads, heterogeneous possessing and extreme performance to deliver unprecedented results. Now shifting gears, let me take you through some highlights from this morning's exciting announcement with the Department of Energy and Oak Ridge National Laboratory. Our Shasta supercomputer was selected to be the next exascale class system in the United States, the Frontier system at Oak Ridge. Planned for delivery in 2021, Frontier will feature next generation and the EPYC CPUs and Radeon Instinct GPUs and create unique differentiating technologies, including our Shasta architecture, software stack and Slingshot interconnect. It will target a peak performance of more than 1.5 exaFLOPS across more than 100 Shasta cabinets. Together with the Cray Aurora supercomputer at Argonne and the Cray Perlmutter supercomputer at NERSC, these three systems will be instrumental in maintaining the United States' leadership in computational and data science, as well as driving economic competitiveness in many fields such as automotive, aerospace, advanced manufacturing, precision medicine and nuclear energy. I want to thank our partners at the Department of Energy, Oak Ridge and AMD.

We are honored to have been selected and excited to embark on this groundbreaking collaboration. At more than $500 million, this is the largest contract award in our history. It consists of several hardware deliveries including early access systems, the Frontier supercomputer and multiple years of service. As part of this award, we also signed a development contract totaling more than $100 million, covering development and testing of new technologies at both Cray and AMD, as well as related applications support as part of a center of excellence. Combined, this is over $600 million in new awards. Let me take a second to give you a perspective of the scale of Frontier. It will be more powerful than the 160 fastest supercomputers in the world on the current top 500 list combined.

It will be roughly the size of two basketball courts and weighing at over a 1 million pounds or the equivalent of 35 school buses. Its network bandwidth could download 100,000 HD movies every second. And if every person on earth did one calculation per second, it would take more than six years to do what Frontier can do in one second. It will be amazing. You may be aware that this contract is the first of the two exascale supercomputers that DOE is awarding under its CORAL-2 program.

CORAL stands for the Collaboration of Oak Ridge, Argonne and Livermore and CORAL-2 was a contract vehicle to purchase exascale systems for Oak Ridge and Lawrence Livermore, as well as the potential future upgrade for Argonne. An award has not been announced for Lawrence Livermore, and as with our previous statements regarding the CORAL-2 program, we are not able to comment any further on that procurement. Brian will take you through some more contract details. But as you might expect, our R&D investments will need to increase this year as we begin working on this project and its many deliverables. This investment is reflected in our current outlook.

Note that the technologies that will be developed as part of these exascale contracts will be available for all our customers and provide further capability to differentiate our supercomputers well into the future. I'm extremely proud of all the hard work that went into this historic win. And I want to thank all of our Cray employees around the world. On behalf of the entire company, we're very pleased to have been selected for this transformative contract, our second exascale system, which is a testament to our unique vision and technology for the next era of supercomputing, the exascale era. With that, I'll turn it over to Brian to take you through the numbers. 

Brian Henry -- Executive Vice President and Chief Financial Officer

Thank you, Pete. Before I get to the 2019 outlook, let me first take you through the first-quarter financial results. For the quarter, revenue was $72 million and as anticipated, we recorded a net loss. Product revenue was $34 million and service revenue was $37 million. Total gross profit for the quarter was about 36%, with product margin coming in at 24% and service margin at 48%.

Due to our upcoming product transitions, we wrote off $3.2 million of inventory in the first quarter. The impact on our gross margin was significant given the comparatively low Q1 revenue. Without it, product margins would have been 33% and overall margins 41%. Non-GAAP operating expenses were $53 million, about $4 million higher than in the prior-year first quarter. This was driven by a $6 million increase in R&D expenses due primarily to the timing of the completion of certain development milestones.

Our GAAP net loss was $29.4 million for the quarter. On a non-GAAP basis, our net loss was $25.6 million or $0.63 per share, compared to a net loss of $21.4 million or $0.53 per share in the first quarter of 2018. Our first-quarter GAAP operating results include $3.6 million for depreciation, $3.7 million for stock-based compensation and $300,000 for amortization. Shifting to the balance sheet. At the end of the first quarter, cash and restricted cash totaled $222 million and working capital was $263 million, a $28 million decrease compared to the end of 2018.

Inventory was $81 million, up slightly since the beginning of the year with 24% or $20 million out of customer sites and in the acceptance process. Please note with the first quarter's filing, the impact of the new lease accounting standard took effect, effectively grossing up our balance sheet by adding right-to-use assets, as well as our lease obligations. Moving to our outlook. For 2019, while a wide range of results remains possible, we continue to expect to grow modestly compared to 2018. Overall, 2019 will be a transition year as we do not plan to begin shipping our next-generation Shasta computing platform until late in the year.

Revenue is expected to be about $70 million in the second quarter. Overall, non-GAAP gross margin for 2019 is expected to be in the 30% range, non-GAAP operating expenses are expected to be in the range of $215 million with the increase primarily driven by differentiating technology investments to help facilitate today's exascale award and our future offerings. Predominantly driven by stock-based compensation, adjusting items from GAAP to non-GAAP are expected to total about $16 million for 2019 with $1 million of that going to cost of sales and $15 million to operating expenses. Based on this outlook, we continue to expect a substantial GAAP and non-GAAP net loss for 2019. For the year, our effective GAAP and non-GAAP tax rates are both expected to be in the low-single-digit range on a percentage basis driven by international taxable income. For earnings per share purposes, share count should be about $41.5 million, though it is dependent on a number of factors. On the Oak Ridge exascale system, I wanted to provide some additional context regarding the contract and address some key questions you may have.

First, as you might expect with a contract of this size, our total estimated gross margin is somewhat lower than our historical supercomputing targets. Second, the contract includes what is referred to as a go, no-go provision, which is effectively a technical checkpoint with both parties will evaluate the progress in contract status. This checkpoint will likely occur about six to 12 months before we would expect to begin shipping the main system. We clearly expect to pass the technical checkpoint and assume that we would be proceeding with the build at this point. That said, until we are past that checkpoint, the value of the build contract will not be included in the backlog for reporting purpose -- purposes.

This also applies to our Aurora contract with Intel. Third, the contract contains inventory and build payment milestones for up to $200 million. These will help improve our cash flows throughout the delivery and build process. Finally, the contract contains risk-sharing provisions driven by price fluctuations at certain commodity components that make up a large portion of the Frontier hardware costs. Depending on the ultimate future component prices an adjustment will be made to the total price of the system, which we have passed to the customer dollar for dollar. This could result in changes to the configuration and size of the system depending on whether the customer spends their final budget.

This risk-sharing helps provide more certainty of future economics of the contract. As Pete mentioned, we plan to deliver Frontier in 2021 and complete the acceptance in 2022. Also as Pete mentioned, we signed a separate $102 million development contract with this award, which will run through our P&L as service revenue over the life of the contract, most of it in the first three years. About $40 million of the total will be paid to our technology partners, principally AMD, as milestones are completed. These funds facilitate additional investments in software and systems that will assist in the exascale system deliverables and technology that will benefit the entire HPC market.

We also filed an 8-K today with -- which provides for additional information regarding this award. I am very excited about the Aurora and Frontier awards. They are evidence of our market-leading technology and put us in an excellent position for the future. While 2019 will be a transition year, we are well positioned to drive long-term revenue growth and shareholder value.

With that, I'll turn it back over to Pete.

Peter Ungaro -- President and Chief Executive Officer

Thanks, Brian. As we laid out on our last call, we have three key focus areas for 2019. The first is to win new business for this year and beyond. The second is to finish development and begin shipping Shasta and the third is to continue to expand into our key growth areas of commercial customers and big data solutions. We're off to a great start on the first one, starting with a strong quarter of bookings, followed by winning what will be the first two exascale supercomputers in the U.S., actually, at this point in the world.

While I'm pleased with our progress, we still have work left to do to deliver on our outlook for the year, including continuing to win new awards for 2019 revenue. We also began making progress on our second focus area, to begin shipping our initial Shasta systems before year-end. We continue to move through the technology development process with the two big development areas being the Slingshot interconnect and the Shasta system software. For Slingshot, one of the key development areas is a Cray-designed network ASIC. We are making steady progress here, and so far the results have been very positive. Of course, we're not out of the woods yet, and we need to continue to execute against our Slingshot development plan. On our new Shasta softer, we're making quite a number of changes as we modularize the stack and integrating new cloud technologies.

We have more development and several additional iterations to complete all this work. Overall, we remain cautiously optimistic that we're in line to hit our target of shipping Shasta systems by the end of the year. Our third focus area for 2019 is to continue to expand into the commercial and big data markets. As I mentioned earlier, we delivered strong commercial results in the first quarter with commercial customers representing more than 20% of our total revenue. While our commercial pipeline remains robust, and our Shasta system will expand our data center capabilities, we still need to win additional awards in order to drive strong commercial growth this year. In artificial intelligence and big data, we continue to see signs of growing traction.

Many of our traditional supercomputer customers are expanding their use of AI. This is a major shift in workloads, and something we've been focused on with the convergence of modeling and simulation with analytics and AI. Recent AI wins include a national laboratory weather research center, as well as a government laboratory, where more than half of the workloads running on their Cray system will be AI use cases, such as geospatial imaging. We've also seen an uptick in the inclusion of our Urika analytics software with recent wins at a defense customer and our commercial aerospace customer. It remains early days in what we believe AI is likely to become, and we're excited by our opportunity to grow in this area of our business going forward. And finally, shifting gears a bit. During the first quarter, Stephen Gold joined our board of directors and John Dinning was appointed as our senior vice president of products.

They both bring valuable experience to our team, and I'm excited to welcome them to the company. As I wrap up, I want to say that I'm very pleased with our progress. Our investments are paying off and our technology continues to lead the market. Today's exascale announcement is further validation of this, showing strength in our future technology road map out to 2021 and beyond. With growing momentum at the high end, we are well positioned to expand our market leadership position and drive strong long-term growth. With that, I would now like to turn the call over to the operator to begin the Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Aaron Rakers from Wells Fargo. Your line is open.

Aaron Rakers -- Wells Fargo Securities -- Analyst

Yes, thanks, guys, for taking the questions. And also, congratulations on the big win today. I guess the first question may be just a housekeeping thing. In your 10-Q filing you disclosed that you had, I think, exited this quarter with about $589 million of, kind of, remaining purchase obligations or other backlog.

You noted that Frontier and Aurora are not included in that. Are there other systems that you've won that aren't included like Perlmutter? Is that included in that? Or are there others that would be excluded from that backlog build?

Peter Ungaro -- President and Chief Executive Officer

I think those are the only two that are not included at this point in the backlog.

Aaron Rakers -- Wells Fargo Securities -- Analyst

OK. Fair enough. And as we move forward, when you think about the -- you've got another CORAL-2 project kind of in process, how are you seeing kind of just in general the overall high-end supercomputing market and particularly, looking outside of the U.S.? Have you started to see increasing signs of activity of other government agencies, other areas needing or wanting to move forward in exascale? And when do you start to think that those projects would theoretically be awarded and kind of deployments for those?

Peter Ungaro -- President and Chief Executive Officer

Yes. That's a great question, Aaron. We've been tracking over a dozen exascale -- pre-exascale and exascale projects around the world right now. I would say Europe is furthest along in what they're doing.

We're actually expecting them to start their pre-exascale procurement sometime later this year. So we -- with our recent awards in the U.S., we feel like we are well positioned to go and compete in there. I think when we think about the international awards, I think that we're going to get a mixture of systems that are going to be able to be competed on openly, and we'll get some that will go to local domestic suppliers. And so it will be kind of a mixture of systems depending on how things work out customer to customer, country by country, really.

And -- but we do feel very confident in being competitive right now, especially after winning these two awards and building -- proving that we have the technology to deliver on these future exascale systems.

Aaron Rakers -- Wells Fargo Securities -- Analyst

OK. And then the final question, and I'm going to get back in queue. Over the past few weeks, we've seen a few articles published around the Microsoft relationship, and what you're doing with Azure. I'm just curious any update on that and how we should think about that opportunity? Have you had other discussions with other cloud vendors as far as potential opportunities around AI and dedicated workloads for manufacturing or EDA? Just any kind of update on how we should think about the cloud as maybe an extension or opportunity for Cray to expand its presence.

Peter Ungaro -- President and Chief Executive Officer

Yes. That's a great question. I mean I really think that the cloud provides us a future opportunity and a future path to customers that we just don't have today. But real supercomputing on the cloud is a little bit out there.

So it's -- we're -- while we're having engagements with customers, it's pretty early still. People are exploring it. But I do think that this is going to be an area that over the next few years does definitely pay off with some fruits in it. I think as you think about the last quarter, I would say the most exciting things over really just the last few weeks have been our announcements with the Azure team that we launched three new services on Azure.

So in addition to us having a Cray system on Azure, we announced three different offerings. The most exciting one and the one that's kind of started off is actually our ClusterStor storage. So this would be that you can put ClusterStor storage onto Azure, not just supporting a Cray system on Azure but also supporting Azure infrastructure itself. So that's a very exciting opportunity for us, kind of a pure storage opportunity for us on the cloud, which we are first one. We also are announcing two new solution areas, one for the EDA market, so for more the semiconductor marketplace, and one for computational fluid dynamics, mostly in manufacturing marketplace, automotive and aerospace customers.

And those are really targeted offerings that are built specifically for those customers that -- and we'll be launching those over the next few months. So there's some nice progress in continuing to think and work with Microsoft and the Azure team in thinking about how to leverage the unique technology of Cray with the amazing infrastructure that they've built in the Azure cloud. We aren't in any active -- while we obviously continue to talk to all of the cloud providers, we don't have any other offerings in any other major public clouds other than Azure today.

Aaron Rakers -- Wells Fargo Securities -- Analyst

Well, thanks. Thank you.

Peter Ungaro -- President and Chief Executive Officer

Yes. Thanks, Aaron.

Operator

The next question comes from the line of Chad Bennett from Craig-Hallum. Your line is open.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Hey, guys, I'll just echo Aaron. Congrats. It's a significant win for you guys, huge, huge credibility boost, and you guys deserve it. So I just wanted to say that.

Peter Ungaro -- President and Chief Executive Officer

Hey, thanks, Chad. Really appreciate it.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

So Pete, as we -- so if we look at this year, I know you talked about you need to book more business to get to where you need to get to this year. And if you look at where you guided for the June quarter, we have to have a pretty significant second-half ramp from a revenue standpoint. I guess what is our visibility there? And I assume we're not expecting to recognize any Shasta-related revenue implied in that second-half ramp. Then I have another question.

Peter Ungaro -- President and Chief Executive Officer

Yes. So it would definitely be a light first half. And Brian mentioned that it's definitely going to be a transition year. I also mentioned that in the comments.

As we knew, as we're transitioning in the Shasta, Shasta is such a unique and different infrastructure for us that we definitely are having customers that are pausing and waiting for that, which we knew was going to happen in coming up to that new technology, which also gives me a lot of hope for that because it makes me feel like it's that important for customers to push off some of their deliveries, which is great. But it is causing a few challenges this year on the revenue growth side, and that's why we expect very low growth overall this year compared to last year. But we are expecting a pretty big ramp in the second half. We have a lot of activity going on right now with a lot of it outstanding that we're waiting on decisions on, which we hope to get over the next quarter or two.

And definitely can see our way where we need to go but there's just a lot of work left to do. We are planning on shipping as I mentioned and right now currently on track on the development side for delivering Shasta at the end of the year. We are hoping that we can get a couple of systems in and installed at the end of the year, hopefully a couple for revenue. But it will be relatively modest, I think, from a Shasta revenue perspective.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Got it. And then maybe a follow-up on that one as much as we can looking to '20. I mean the pre-exascale activity and obviously the exascale activity from a revenue impact standpoint is kind of early as 2021. I guess with Shasta fully available in 2020, I guess in terms of the next level bound in the high-end market, call it the $50 million to $150 million systems, and maybe the high ends -- high end of that range is, we're getting into a pre-exascale territory.

But I guess the pipeline or activity in that kind of range if you want to call it, I mean is it fairly active right now? And is that really what's going to drive Shasta growth from a revenue standpoint next year?

Peter Ungaro -- President and Chief Executive Officer

Yes. Chad, I would say where the most active kind of revenue bar -- kind of area of our pipeline is, it's probably more in the like $8 million to $10 million machines up to maybe $30 million, $35 million. Kind of in that range would be kind of really the sweet spot of where we're seeing a lot of procurement activity going on right now. You're right.

As you get $50 million, especially as you get over $100 million, you're now in the pre-exascale range and that's kind of verified error overall. But I would say in that $10-or-so million to $35-or-so million range is where we are seeing most of our bidding activity right now and where we're seeing the market pick up the most.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

OK. And then last quick one for Brian, probably. Brian, the inventory writedown this quarter, I guess is that behind us now just in terms of -- as we look at the rest of the year from a gross margin standpoint? Do we have any other risk on the margin writedown front? And then I'll jump off around the inventory writedown part.

Brian Henry -- Executive Vice President and Chief Financial Officer

We look at it pretty intensely every quarter. And so I would say if we thought that there were risks that were significant, we would have written it off in the first quarter because that's what we do. Most of the stuff that was written off is tied to kind of the end of the current XC line as we move toward Shasta, and we just were long on certain components that we have to order in bulk. And some of the orders, and a lot of them are for '20, '21, and beyond, are looking to buy the Shasta product.

And so after seeing some orders shift from what could be XCs onto Shasta, we took a really hard look at some inventory that we thought were designated for potential wins and decided to write it off. And it profound impact on our gross margin this quarter, which, on a small sample size, were improved over recent quarters.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

OK. Thanks. Congrats, guys.

Peter Ungaro -- President and Chief Executive Officer

Yes. Thanks, Chad.

Operator

[Operator instructions] Our next question comes from the line of Alex Kurtz from KeyBanc.

Steve Enders -- KeyBanc Capital Markets -- Analyst

Hey, guys. This is Steve Enders on for Alex. Congrats again on the win today. I was just kind of wondering--

Peter Ungaro -- President and Chief Executive Officer

Thanks, Steve.

Steve Enders -- KeyBanc Capital Markets -- Analyst

Yes. Just kind of wondering if we could have any detail on maybe what the competitive environment looked like on that deal. Were there any bids that came in at a lower price? Just kind of wondering how that came together and developed.

Peter Ungaro -- President and Chief Executive Officer

Yes. Great question. So we don't know a lot about the -- they unfortunately don't tell us all the details of all the other bids even with all my begging. But it's -- we know that there is multiple bidders.

Our best estimate from the marketplace was that there is four total bidders including us but we're not 100% sure on that. And we don't believe that we're the lowest bidders. So we do believe that there are other bids that are lower than ours, so pretty excited that they really valued our technology, and what we were doing with Shasta, especially our Slingshot interconnect and the software stack that we're really excited about overall. So it really -- as we see these systems starting to be -- come out, especially at this massive scale, we're seeing people really see focus around the capability of the machines and the real price performance on real applications of the machine.

And that's where we think we shine. So we're feeling pretty good about things right now.

Steve Enders -- KeyBanc Capital Markets -- Analyst

OK. Great. That's helpful. Just kind of wondering, just kind of looking in the commercial space, it kind of seems like you're seeing a little bit of recovery in the energy market.

Just kind of wondering if there's any other kind of sectors, departments that are starting to work there as well?

Peter Ungaro -- President and Chief Executive Officer

Yes. That's a great question. Energy segment is strong, like it's coming back really strong. And I think if you think about the last couple of years, the energy segment dipped.

It almost went to near zero for us and has come back and started to come back. And last year, we had a pretty good run in the energy segment. We continue to see that as a strong segment for us overall. Manufacturing has also been a pretty good segment for us, and we're seeing nice growth there, especially in the aerospace customers, a little bit with the automotive and Formula 1. But I would say aerospace, probably the sub-sector of the manufacturing segment, that's been the strongest. And then we're seeing, especially with the AI systems, we're seeing those placed in just a wide variety of different industries.

And no real concentration, but probably the widest set of industries that we've ever delivered Cray systems to, which is great for us because it gives us an opportunity to expand our customer base and learn a lot more about some new industries that we think may have some unique value propositions for us, so...

Steve Enders -- KeyBanc Capital Markets -- Analyst

OK. Great. That's helpful. Good to hear it kind of expand outside of the energy vertical.

Just kind of wondering, again, on the Shasta side, with you announcing wins back in March on that previously. Just kind of wondering if that leading to any increased interest in the market and potential customers about the architecture?

Peter Ungaro -- President and Chief Executive Officer

Yes. It's been exciting. I mean we, both with our -- really going back to our first win with NERSC on that machine and going to the Argonne system and now this Oak Ridge system, what's really exciting is that we're seeing these wins in every system is actually different. The NERSC system is AMD CPUs and in video GPUs and the Argonne system has Intel technology in it and now the Oak Ridge system has AMD technology both on the CPU and GPU side.

And so people are really starting to see the breadth of the platform and that we're able to really deliver, I think, a really compelling solution across a broad set of different processor architectures, which are really exploding out there with choice, and so we're definitely seeing a lot more interest, and every time we make an announcement like we did today, I get a lot of real fun emails and I know a lot of our sales team does, too. So it's great to see, and we hope to keep it up.

Steve Enders -- KeyBanc Capital Markets -- Analyst

Great. Congrats again on the wins, and thanks again for the questions.

Peter Ungaro -- President and Chief Executive Officer

Yes. Thanks so much.

Brian Henry -- Executive Vice President and Chief Financial Officer

Thanks, Steve.

Operator

We have a follow-up question from the line of Aaron Rakers from Wells Fargo.

Aaron Rakers -- Wells Fargo Securities -- Analyst

Yes. Thanks, guys. I couldn't help myself to get back in queue. So I've got a couple more questions, just maybe on a topic basis.

So in the prepared comments, and I can appreciate that you won't say anything about, I guess it's code named El Capitan as far as the Lawrence Livermore CORAL-2 project. But are you willing to make a comment on when you think the timing of such a project win would be reasonably expected?

Peter Ungaro -- President and Chief Executive Officer

Yes. That's a great question. So the net answer is we don't know. It's with the government, and the timing is with them.

The only information that they've let out, which is over a year old now, which is that they had a goal of awarding both the Oak Ridge Frontier system and the Lawrence Livermore El Capitan system by the end of the government fiscal year, which would be in September, but we can't comment on that procurement. So that's about all I can say on it.

Aaron Rakers -- Wells Fargo Securities -- Analyst

OK. Fair enough. I had to ask. And then in the past, you've mentioned as you develop and it sounds like you're really confident in where you are progressing with regard to Slingshot, have you had any further thoughts or kind of discussions around whether it makes sense to consider that as an externally offered solution, especially in the context of Nvidia and the process of buying Mellanox?

Peter Ungaro -- President and Chief Executive Officer

Yes. I wouldn't say that the Nvidia Mellanox acquisition has much impact on our decision-making on that front but we are very interested in looking at this as I mentioned on previous calls. This is something that we see as a potential opportunity for us. It's something that we thought about all the way back to when we first decided how we were going to design Slingshot and that we were going to base it on Ethernet, which gives us a much broader play than we've had with our traditional interconnect.

And so this is -- this is something that we'll definitely look at. I really think it's more of a 2020 decision. Of course, we first have to get Slingshot out the door. And we're trying to -- we're running really hard to do that by the end of the year.

And then once we see it and see how it's playing out -- and so far that's all looking great but once we see it and see how it's playing out, then I think we're going to make the decision about does this make sense to look at further opportunity. But right now, we have the whole R&D team running hard to get Slingshot into Shasta and this new software stack that combines what I like to say the best of supercomputing software and the best of the cloud software all together in one stack, which is a huge development effort that we're doing right now. So we're really focused on that right now. And preserve that kind of business opportunity to look at maybe taking some of those technologies outside the system and looking at different markets.

Aaron Rakers -- Wells Fargo Securities -- Analyst

That's perfect. And then the final, real quick question. As commercial becomes a bigger part of the overall business and the story, do you have any -- have you done anything that's changed around kind of the go-to-market there? Have you established kind of new partnerships, alignments as far as expanding your go-to-market strategy around commercial? And that will be it. Thank you.

Peter Ungaro -- President and Chief Executive Officer

Yes. Yes, Aaron, great question. I want to say first a little bit on the technology side, then the go-to-market side. So Shasta's been developed in such a way that it's very different from our existing architectures, where today if you want kind of all the technology value of Cray, you have to buy our high-end XC supercomputers, which go in a liquid-cooled cabinet, a very big cabinet, and it's not so data center-friendly for commercial data centers and if you want more the 19-inch standard air-cooled racks, that's our cluster technology, which has less differentiation from our Cray perspective.

It doesn't have our interconnect or our software stack and Shasta breaks that apart. So in -- I think one of the biggest things that we've done with Shasta is break apart the decision of what is the infrastructure of the machine, the cabinet, whether it's a 19-inch air-cooled cabinet or even liquid-cooled cabinet or a water -- a very densely packed water-cooled cabinet, from the decision of do you want a Cray interconnect and do you want a Cray software stack. And so this gives us a lot more opportunity with commercial customers to not face that kind of data center integration for this, especially with Slingshot being Ethernet-based, which most commercial data centers are very Ethernet-centric. So these are all really positive things.

And then on the go-to-market side, this is an area we're going to really start working. Right now where we're focusing most of our energy is on two areas. One is our partnership with the Azure team with cloud, which is clearly targeted at commercial. As well as some government customers, too but I would say kind of commercial first is a huge part of that target.

And then also with some partnerships with some AI technology companies. Really AI services companies, so companies that can help customers that don't have all the skills in-house, take AI and get it running and operationalized in their environment, really put into production. So that's something that you'll see us continue with and continue our focus on, reach out the custom market by the end of the year.

Aaron Rakers -- Wells Fargo Securities -- Analyst

Great.

Peter Ungaro -- President and Chief Executive Officer

Yes. Thanks.

Operator

There are no further questions at this time. Presenters, you may continue.

Peter Ungaro -- President and Chief Executive Officer

All right. Thanks to everybody. It's a great day for Cray today. And no matter what question you asked me today, it's hard to get the smile off my face.

And so I just want to thank all of you guys for joining our call today and for your continued support at Cray. Have a great evening.

Brian Henry -- Executive Vice President and Chief Financial Officer

Thank you. Beautiful day in Knoxville.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Paul Hiemstra

Peter Ungaro -- President and Chief Executive Officer

Brian Henry -- Executive Vice President and Chief Financial Officer

Aaron Rakers -- Wells Fargo Securities -- Analyst

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Steve Enders -- KeyBanc Capital Markets -- Analyst

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