Cray (Nasdaq: CRAY) supercomputers. Surely you know the name, but did you know Cray is also a public company? It is, and the company behind this legendary name is due to report its fiscal 2007 earnings results on Thursday. In honor, we're going to do a little number crunching of our own today.

What analysts say:

  • Buy, sell, or waffle? Three analysts keep an eye on Cray and give the stock two buy ratings and a hold.
  • Revenues. On average, they're looking for quarterly sales to slump 44% to $57.2 million.
  • Earnings. Breakeven profits are predicted.

What management says:
Juxtapose two management comments from last quarter's earnings release for a moment: "Revenue for the quarter grew to $55.0 million compared to $32.6 million in the prior year period ... gross margin for the third quarter of 2007 was 40.3 percent compared to 35.0 percent." That's good, right? But then Cray goes on to say that it "continues to anticipate 2007 revenue will likely be below $190 million, with a loss for the year [but] an improved gross margin for 2007 compared to 2006."

What management does:
The gross margin does indeed seem to be coming along nicely. However, operating and net margins appear to be heading toward that loss that management predicted. Cray may be at the top of the heap in supercomputers, but when it comes to profiting from the things, it just can't keep up with the big boys -- IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ), and Sun (Nasdaq: JAVA). The worst of these, Sun, still earns better margins than Cray.

Margins

6/06

9/06

12/06

3/07

6/07

9/07

Gross

23.8%

26.6%

28.9%

30.4%

30.5%

32.2%

Operating

(10.5%)

(12.0%)

(2.7%)

(1.1%)

(3.4%)

2.0%

Net

(16.2%)

(16.2%)

(5.5%)

(3.5%)

(3.3%)

2.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
So what's the deal with Cray? Fellow Fool Anders Bylund put it so well that I'm just going to quote him verbatim: "The thing to remember is that Cray's earnings and revenues are very lumpy, because the products the company sells are very expensive, and it's a small fish in today's technology pond. If you shift the timing of one or two of these large orders to the next quarter, this quarter will look horrible -- and vice versa."

Based on analyst estimates of a 44% decline in sales Thursday, we're about to test that thesis. But once the bad news passes, make sure to take a close look at Cray's cash flow statement. You'll have to be patient for this, though. Cray makes us wait a while for its 10-Q and 10-K filings to show us the money.

A few months back, I highlighted this company as a potential contrarian pick, based on its ability to generate decent, and growing, piles of cash. If that remains true despite the decline in sales, the company could be worth a closer look.

For related Foolishness on Cray, boot up the following articles from our archives:

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.