CRAY
#Yes, that's correct, <UNK>.
Really, <UNK>, really driven from those three processors that I talked about and availability of those components.
Well, you know, once we build the machines and deliver them to our customers, of course they go through an acceptance process and then we get revenue at the end of that process.
So we'll always have that at the end after we do deliveries.
But right now, I would say our main focus is getting those third-party components in, getting them into systems and getting them out the door.
And I think our view is there's a lot of work left to do to get that done, both by us but even more importantly by the processor vendors themselves and getting those to us, and then we'll do our thing.
So we feel that the biggest focus area right now is for us to get all of the existing contracts that we need to get to our revenue for the year and then get those components in so we can get them out to customers and get them through the acceptance process.
Yes, you know, it's very early in the year, as you know, and we still have, clearly, a lot of work left to do.
And the good thing is our pipeline is growing.
We signed a number of new contracts.
If we kind of look, <UNK>, to get directly to your question of where we were this time last year versus where we are right now, it's about the same from a percentage of our overall revenues that we have booked right now.
But, the bigger thing is that, every year, our number keeps on growing.
Our expectations keep on going up.
So, there's plenty of work ahead of us this year to still do.
So we are very focused on closing those sales contracts that we need.
I'll take the first one and let <UNK> take the second one.
We are really excited about commercial.
It's a huge opportunity for us and almost untapped even though we've had nice growth over the past few years in growing both our commercial customer base as well as our revenues in the commercial segment.
You know, our biggest driver in the commercial markets has really been this huge growth of data.
And as those data sets for commercial customers get larger and larger, what they are finding is that their traditional architectures that they are doing their ---+ they are computing on are really not keeping up with the growth of data.
And so we've really seen a huge push from them as they start to look at all their data as they think about new ways to process through that data, new algorithms, new methods that they can process through that data, that we are really starting to pick up kind of new workloads or advanced kind of workloads.
So for instance, in the energy segment, which is one area that we've been particularly strong in, a huge part of that is, with all of the data now, that they need a faster way to get through that.
They need to do it much more in parallel versus in serial processing as they've done in the past.
And of course, our systems are really architected to make that go really well.
Very similarly, in financial services, they have a huge need for speed and there is a big amount of data that they are dealing with that they really hadn't dealt with before.
And they are starting to turn to not only our systems but even new technologies like GPUs and other accelerators to try and attack those problems overall.
So, we are seeing this quite a bit across the board.
The other thing that we are seeing a lot in commercial is we are seeing us get started with new commercial customers, sometimes at a much smaller system size then we have traditionally been used to.
And once we prove ourselves what that system, we are seeing them repeat and re-up and buy multiple systems.
I had mentioned of that we had one customer that last year bought 10 different systems from us and another one that bought five around the world from us in different locations.
And so we are starting to see a little bit more repeat business from commercial customers that we really don't see from our traditional customer base where they buy one big system every two, three, or four years, depending on their budget cycles.
So, it's quite a different feel for us in that marketplace, and we've done a lot of work internally to really help to get ready for that and continue to grow in that area.
Yes, it's a great question.
You know, we definitely want to grow that number.
I've mentioned a number of times that I'd like that percentage to be a third of our business over the next few years.
But it's going to be lumpy year-to-year and such.
Definitely we have internal goals to do better than 15% without a doubt in 2016.
I guess the one thing I would say right now for us that's a little bit of an unknown in the commercial (technical difficulty) revenue for 2016 is what happens in the energy market.
That's our biggest commercial market right now.
They are having a rough patch.
We haven't seen them back away right now.
We are seeing in fact the larger energy companies really investing in this area because they think that they can use it and get a strategic advantage during this time, but that's one that we just really monitor a lot on.
And I think without a doubt we are going to grow our customer base year-over-year, and we'll just have to see how the revenue plays out, but we definitely have internal goals to keep on growing that number, Rich.
Rich, getting on the gross margin thing, a couple of things to know.
Remember that in the first half of the year of 2015, our gross margins were depressed in an unusual way.
We had some unusual bids where the costs came in a lot higher.
We also suffered for being on the early side of some of the new product cycles such as memory and paid a premium price for those early shipments and things.
So they hurt us early.
As the year went on, we rebuilt and we feel where we are headed for 2016, there is a good opportunity for us to improve margins.
And I said 1 or 2 points.
And we're also going to get some help on the service side this next year too in terms of what's improvement we expect in gross margins overall.
Yes, great question <UNK>.
Just overall, when we look at the competitive environment, over the last quarter or so, we haven't really seen many changes.
So, the way we see the market today is very similar to the way that we saw it when we first came out with the guidance.
So that really I would say just has kind of held firm.
We feel, as I mentioned, very confident and comfortable with our competitive position within that market and our opportunities within that space.
So that I think, from that perspective, all good.
Of course, as you know, in our business, sometimes with very large deals you can get a certain competitor to come out with very aggressive pricing.
Typically, we don't go down and play that game.
So typically, we've really focused on keeping our margins at a good level.
And as <UNK> mentioned, the softness in our margins last year was due to kind of some other factors, not really competitive factors but some of our component costs and different things like that.
So, from that perspective, I would say that that's not a major driver.
Of course, we are in a competitive market and we always watch that, but I don't think that that's been a major piece of it, and it definitely hasn't changed our view from when we first came out with this guidance a few months ago.
<UNK>, just to be clear, you mentioned Blue Waters but did you mean Blue Gene.
Yes.
So this has all been really positive for us.
We've won a number of accounts that went over to Lenovo.
And in a few instances, as you know, even IBM has used Cray for some of their opportunities where Lenovo didn't work out for the customers.
So it's been a really good opportunity for us and something that we've been able to capitalize quite a bit.
We've also won a few of the Blue Gene accounts.
In the past, we've talked about KAUST and Argon and just this call we mentioned of the University of Warsaw in Poland, all Blue Gene accounts, and there's more of those to come over the next few years, and so we definitely have opportunities in 2016 at various Blue Gene accounts.
So, we feel like we are in a really good position here and that we already have taken advantage of some of that and that opportunity is going to continue over the next couple of years.
No, not at all.
I think we still view it as a pretty good sized market and a good opportunity for us, kind of incremental to our business overall.
I think the one thing, <UNK>, just on that, I think what we have seen, if I kind of characterize it, so I don't see a change in the ultimate opportunity.
What I see is that it kind of is spreading out a little bit further.
So we were thinking that it was going to be mostly in 2016, 2017 kind of time frame, a little bit in 2015, a little bit in 2017, mostly in 2016.
I think we now see it spreading kind of into 2015 as we saw a little bit of win last year there ---+ 2016, 2017 and even into 2018 a little bit.
So we kind of see that spreading out.
One thing that we are seeing a lot with the big centers is them spreading out their purchases a little bit but buying much bigger systems in each incremental drop.
I think a good example is the Los Alamos Trinity system.
So, a little bit longer than normal, maybe an extra year on that but then a much bigger systems than we've seen a customer like that purchase.
So we are starting to see that trend, which for us overall is a fine trend, so we don't mind that at all.
Yes, no problem <UNK>.
So, Omni-Path is an exciting new technology.
We really view it with our cluster line, so in our CS400 line of products where we now support both the InfiniBand products for Mellanox of course as well as the Intel Omni-Path.
We're not sure how that's all going to play out this year, how many customers are going to go ---+ stay with InfiniBand, how many are going to move to Omni-Path.
I think that that's really going to play out over the next few months as people start getting real data about how both of these technologies play against each other.
When we look at Omni-Path compared to our Aries technology, which is on our XC40 line, we clearly see advantages with our Aries technology, especially at scale and when you have a lot of performance needs and a lot of data that's moving around the machine altogether.
So we still feel very strong in our competitive position with Aries.
You know, a future Omni-Path product will eventually replace Aries, but we don't see this first generation of Omni-Path being that product.
That we see that really playing in our cluster side of our business.
No <UNK>.
So, the way that we think about the $825 million number is we know that there are a few of those Blue Gene customers that haven't publicly announced projects to upgrade them but are working through procurement cycles that we expect to kind of complete sometime this year and do upgrades.
So, I think that we kind of view ---+ we see that opportunity really well.
You can imagine we are talking to all of those customers in the marketplace around the world.
But ---+ so we see that, that's part of the way that we think about our $825 million.
Of course, there's a lot, as we mentioned on the call, there's a lot of work to do to get there, so there are some upside opportunities.
There is some downside risk just as normal this early in the year.
But what we really ---+ what I was trying to get across to <UNK>'s question is just that we've seen that kind of spread out, so we see customers kind of holding onto their big supercomputers, Blue Gene being one of them, for a little bit longer period of time than they have traditionally, which typically most of the big government customers are on three- or four-year upgrade cycles.
We've seen that kind of stretch a little bit, maybe six months to a year or so.
And so that's what I'm saying about that opportunity spreading out.
But when we see ---+ and giving guidance for our 2016 numbers, we pre-much know what's happening out there with all of those customers and we think about that and our opportunities and our win rates as we come up with our guidance for $825 million.
I really think that this ---+ I mentioned a little bit about this convergence between supercomputing and analytics, and I think that's going to be a huge opportunity for the Company overall and something that we are very focused on and well-positioned.
I think that the Urika products are doing really well and as I gave a little bit of a hint towards, we've got a nice little upgrade coming in that line later this year that we are very excited about.
You were asking really about how does that flow down to our bottom-line.
And what I would tell you is, in 2015, as we mentioned before, it was really a double-digit kind of millions of investment, right.
So as we look at kind of the revenue and the margin from those wins and we look at the costs that we are spending, it was in the low double-digit millions.
And that's where it was for 2015, so in line with what we had told you guys earlier.
In 2016, we expect to continue to grow on the revenue side and get that number still being a negative on the bottom line, so it's still an investment area for us, but more in the single-digit millions in 2016.
There's a lot of variables that go into it.
But we start with what we think we can do in revenue.
We think about various scenarios and then we think about what are the key constraints in order to deliver those kinds of revenues compared to where we are and then build a plan around it that will last us for a while.
In this case, we do all that analysis, think about the key constraints often having to do with power and cooling, and then we designed the strategy around that, in this case a modular strategy where we can augment at lower cost increased capacity in a facility but start out with enough that will give us the flexibility in case we over-achieve our numbers or have a different mix.
When we think about capacity, we also think about peak periods, not just the average, if that's helpful.
<UNK>, as we mentioned earlier, over the last four years, we've grown 200%.
So even though we did that upgrade to our manufacturing capacity a couple of years ago, we are starting to grow.
And as we project out into the future over the next three to five years, that's where we really see that, as we look at our opportunity to continue to grow, that we need to stay ahead of that a little bit and that's where we are looking at it.
And as <UNK> mentioned, the design that the guys have come up with allows us to modularly grow that much easier than we have in the past with our existing facility, so we are pretty excited about that.
And remember, this wouldn't come online until 2017, as contemplated.
No.
It's really the latter.
It's really just kind of overall revenue growth over time that we see and that opportunity that we see in the market with this convergence of supercomputing and big data and where we believe that we are positioning our Company to take advantage of that that's really going to drive that.
So, it's not a specific huge opportunity or two, although there's clearly some of those out there, but it's really more about just the overall growth and what we need to support that with our customer base.
Now, we clearly, in the design of it, we consider building very large systems.
First, we have $285 million in cash, so it's one more of opportunity that we'll look at and alternatives.
And it's still early in the process and we're unlikely to finance the construction outside.
But we'll look at some kind of more intermediate or permanent financing as we go along and look at the options and decide and actually take input from others on how you guys view different approaches as well.
Yes, we are really saying that, on a non-GAAP basis, about 10%.
You know, it can vary little depending on the mix.
And then the full tax rate without any NOLs used is probably mid-30s%, maybe between 35% and 38%.
Oh, on 2017.
It depends on where we are on that.
We have ---+ if you do the math, we had $76 million of NOLs, so count that dollar for dollar against income, and then we had $23 million of credits, and divide that by 35%, so call that another 70% or so.
And so that's the combined amount of shield we have right now without generating any additional R&D credits.
Thank you.
I'm pleased with our 2015 results and our progress and prospects for 2016.
We are in strong competitive shape and we continue to gain momentum in the market.
We are positioned to have a great year and continued success going forward.
Thank you all for joining the call today and for your continued support of Cray.
Have a great evening.
