949158--3/11/2008--CRAY

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Our reliance on third-party suppliers poses significant risks to our operating results, business and prospects. The achievement of our business plan in 2008 and future periods is highly dependent on increased product revenue and margins from our Cray XT4, Cray XT5 h , Cray XT5 and successor systems. If government support for development of our supercomputer systems is delayed, reduced or lost, our net research and development expenditures and capital requirements would increase significantly and our ability to conduct research and development would decrease. Failure to overcome the technical challenges of completing the development of our supercomputer systems on our product roadmap would adversely affect our revenue and operating results in subsequent years. If the U.S. government purchases fewer supercomputers, our revenue would be reduced and our operating results would be adversely affected. If we are unable to compete successfully in the HPC market, our revenue will decline. If we cannot retain, attract and motivate key personnel, we may be unable to effectively implement our business plan. Lower than anticipated sales of new supercomputers and the termination of maintenance contracts on older and/or decommissioned systems may reduce our service revenue and margins from maintenance service contracts. Expansion of new Technical Services could reduce our overall service margins. Our stock price is volatile. The adoption of FAS 123R has and will continue to adversely affect our operating results and may adversely affect the market price of our common stock. We may infringe or be subject to claims that we infringe the intellectual property rights of others. We incorporate software licensed from third parties into the operating systems for our products and any significant interruption in the availability of these third-party software products or defects in these products could reduce the demand for our products. Our indebtedness may adversely affect our financial strength. We may not have the funds necessary to purchase the Notes on December 1, 2009, upon a fundamental change or other purchase date, and our ability to purchase the Notes in such events may be limited. We will require a significant amount of cash to repay our indebtedness and to fund planned capital expenditures, research and development efforts and other corporate expenses. We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 at the end of each fiscal year, and any adverse results from such future evaluations could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price. New environmental rules in Europe and other jurisdictions may adversely affect our operations. U.S. export controls could hinder our ability to make sales to foreign customers and our future prospects. We may not be able to protect our proprietary information and rights adequately. A substantial number of our shares are eligible for future sale and may depress the market price of our common stock and may hinder our ability to obtain additional financing. Provisions of our Restated Articles of Incorporation and Bylaws could make a proposed acquisition that is not approved by our Board of Directors more difficult.

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949158--3/11/2008--CRAY_INC