Hewlett Packard Enterprise buys supercomputer maker Cray Inc

by Kim Boateng Posted on May 18th, 2019

Hewlett Packard Enterprise (HPE) on Friday announced a deal to acquire U.S. supercomputer manufacturer Cray to tap into the future exascale market.

HPE said it has entered into a definitive agreement under which it will buy the Seattle-based high-performance computing (HPC) company for 35.00 dollars per share in an all-cash transaction valued at about 1.3 billion dollars.

The merger will give HPE an opportunity to drive the next generation of HPC and play an important part in advancing the way people live and work, said President and Chief Executive Officer of HPE Antonio Neri.

HPE said the transaction is expected to close by the first quarter of its fiscal year 2020, subject to regulatory approvals and other customary closing conditions.

The deal came only a few weeks after Cray said it would make the world’s fastest supercomputer in 2021, in the wake of a 600-million-dollar contract awarded on May 7 by the U.S. Department of Energy to Cray for making a supercomputer called Frontier.

Frontier will have a performance of 1.5 exaflops, or 1.5 quintillion calculations per second, faster than the 1.0 exaflops supercomputer Cray is developing with Intel called Aurora.

Such exascale capabilities will offer a promising prospect for the HPC sector, which will generate more than 4 billion dollars in the next five years, according to HPE’s forecast.

The HPC segment of the market and associated storage and services is expected to grow from about 28 billion dollars in 2018 to approximately 35 billion dollars in 2021, an increase of 9 percent annually, said HPE.

Shares in Cray jumped by 18% after announcing the $1.3bn (£1bn) deal.

HPE chief executive Antonio Neri said: “Answers to some of society’s most pressing challenges are buried in massive amounts of data.”

He added: “Only by processing and analyzing this data will we be able to unlock the answers to critical challenges across medicine, climate change, space and more.”

The company predicts that the market for data services and storage from areas such as artificial intelligence is expected to grow from $28bn last year to $35bn by 2021.

Cray was founded in 1972 by Seymour Cray, who is called “the father of supercomputing.” It offers a comprehensive portfolio of supercomputers, high-performance storage, data analytics and artificial intelligence solutions.

Cray has 1,300 employees and conducts most of its manufacturing in Chippewa Falls, Wis. Building sensitive hardware domestically is an important factor for federal government customers, who have expressed worries about possible security threats involving systems or components produced offshore.

That has been underscored by United States actions against China’s Huawei, which sells telecommunications gear and has already been effectively blacklisted from selling in the United States. The latest Trump administration actions include prohibiting American chip makers from selling their components to Huawei.

HPE is paying $35 per share for Cray, which is based in Seattle and employs 1,300 people.

HPE, one of two companies created in the 2015 breakup of Hewlett-Packard, is a major supercomputer supplier in addition to selling general-purpose server systems. In the latest ranking of supercomputer installations, Cray was fourth with 49 systems and HPE fifth with 46.

What worries some officials in the United States is the rapid rise of suppliers based in China. One of them, Lenovo, which bought former IBM hardware operations, led the rankings with 140 supercomputers installed. Two others, Inspur and Sugon, were second with 84 and third with 54, respectively.

The United States managed to claim back bragging rights for having the world’s most powerful system last June, with an IBM machine at Oak Ridge National Laboratory in Tennessee that ended a five-year reign of Chinese machines. And Cray hardware has been selected for two massive machines expected to set a new performance standard in 2021 — a $500 million system at Argonne National Laboratory in Illinois and a $600 million system chosen by Oak Ridge.

Cray, partly because of its focus on landing government contracts with big price tags, has tended to experience sharp swings in sales and profits. In the quarter that ended in March, for example, the company reported a net loss and a 10 percent revenue decline.

“While these recent wins validate our belief in our next-generation products as well as the wide range of opportunities they will open for us, we continue to face the challenge of scale,” Peter Ungaro, Cray’s chief executive, said in a blog post accompanying the deal announcement.

Officials in the United States have long worried about the financial stability of key technology suppliers. “That was a challenge” for Cray, said Horst Simon, deputy director of research at Lawrence Berkeley National Laboratory in California, a major user of the company’s technology. Aided by HPE, Cray should be better able to compete in international markets where Chinese manufacturers have been placing many systems, he said.

Antonio Neri, HPE’s chief executive, said his company’s sales force was five times larger than Cray’s. By using it to push both Cray’s products and HPE’s existing hardware, he added, the combined company should be able to reach many more customers.

“Now we can bring it all together and scale it to significant levels,” Mr. Neri said in an interview.

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