Supercomputer company Cray said its 2015 sales will be better than expected in what could be a sign that enterprises are gravitating more toward high-performance computing.
The company said its 2015 revenue will be $720 million to $725 million. Wall Street was expecting about $716.8 million in revenue for the year. Cray had projected about $715 million in revenue for 2015.
Meanwhile, Cray stuck with its 2016 outlook, which calls for annual sales of about $825 million. Cray CEO Peter Ungaro said the company's results are largely due to "an expanding presence in the commercial market across each of our offerings."
Given the low expectations for tech earnings in the fourth quarter, Cray's outlook stuck out. Analysts have noted that the stars may be aligning for supercomputing vendors. Cray is a pure play on high-performance computing, but IBM, HP, Dell and Silicon Graphics are also key vendors.
Needham analyst Richard Kugele said in a research report:
We believe HPC as an industry remains well positioned to continue to see outsized IT spending levels vs. the broader market, with Cray exceeding the space through share gains and crisp execution.
Should enterprises go for building their own supercomputing clusters for big data and analytics it could be a boon for a company like Cray. Surely, many of these workloads will go to the cloud, but as companies increasingly succeed or fail based on their datasets and algorithms high-performance computing (HPC) clusters may be used in house for the most important workloads.
Barry Bolding, chief strategy officer at Cray, said large companies are increasingly utilizing scientific computing and workloads that are consistent are often more cost effective on-premise. The cloud provides an HPC option for smaller and midsized companies.
"There are a lot of great uses for the cloud and it's more flexible," explained Bolding. "But when you have continuous work the cloud can be more expensive because there's so much volume. You can't afford to do spot pricing all the time and have to reserve instances at a premium. If you're doing weather forecasting 7 days a week, 24 hours a day and 365 days a year on-prem is less expensive."
Instead, Bolding said high-end Cray systems are more complementary to the cloud, which is used for bursting.
Stifel analyst Aaron Rakers noted a few things are lining up to boost HPC in the enterprise.
Intel's Broadwell processor cycle as well as its next-gen Xeon Phi will drive Cray upgrades. In addition, Intel is going after Mellanox with its network fabric technology. All of these developments could boost upgrades.
Commercial expansion. Rakers noted:
In mid-November Cray management noted that it had seen a 4x increase in the number of commercial customer briefings during the SC'15 conference when compared to the SC'14 conference, reiterating that it expects commercial contributions at 15% of revenue in 2015 (up more than 2x increase vs. 2014 contribution.
Cray is primarily focused on companies in energy, manufacturing, financial services and life sciences. Cray's take is that companies that need more than 50 percent utilization rates will go with on-premise HPC installations.
Big data, analytics and HPC are converging. Cray has invested in a platform called Urika that's designed to be optimized systems for analytics and big data workloads. Cray hasn't revealed Urika sales, but analysts have noted that the company has invested heavily in the effort at the expense of profits.
Bolding said that big data is a key growth area for Cray. For instance, better sensors have led to more data and enterprises are looking for more integrated systems. "Traditionally, we've sold into government and big science universities, but we've seen that expand. Analytics is the smallest of our three businesses--computing, storage and analytics--but it's where we see supercomputing going," said Bolding.
Government spending on supercomputing. President Obama signed a bill in December that included $1.24 billion for advanced computing.
What remains to be seen is whether Cray can continue its momentum, but it surpassed expectations the last two quarters. The gains may indicate that enterprises may spend more on HPC systems.