949158--3/16/2010--CRAY

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If the Defense Advanced Research Projects Agency ( DARPA ) terminates our DARPA High Productivity Computing Systems ( HPCS ) program in whole or in part or if we are unable to achieve and obtain acceptance of key DARPA milestones when or as expected or at all, our desired strategy would be adversely affected, our net research and development expenditures and capital requirements would increase significantly and our ability to conduct research and development would decrease. If our strategic initiatives targeting markets outside of the high end of the high performance computer ( HPC ) market are not successful, our ability to grow our revenues and achieve and sustain profitability will be adversely affected. If we are unable to successfully sell and deliver our Cray XT5 and Cray XT6 systems and develop, sell and deliver successor systems, such as our Baker system, our operating results will be adversely affected. The continuing commoditization of HPC hardware and software have resulted in pricing pressure and may adversely affect our operating results. Failure to overcome the technical challenges of developing competitive supercomputer systems years before they can be sold would adversely affect our revenue and operating results in subsequent years. Our reliance on third-party suppliers poses significant risks to our operating results, business and prospects. 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 highly competitive HPC market, our business will not be successful. We may fail in our efforts to keep up with rapid technological changes in the HPC industry. We are subject to increasing government regulations and other requirements due to the nature of our business, which may adversely affect our business operations. If we cannot retain, attract and motivate key personnel, we may be unable to effectively implement our business plan. Our stock price is volatile. 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. 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. We may not be able to protect our proprietary information and rights adequately. A significant 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.

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949158--3/16/2010--CRAY_INC