Cray Gives Pink Slips to 8 Percent of its Workforce

Published: January 10, 2006

by Timothy Prickett Morgan

Having decided to consolidate its two Opteron-based supercomputer lines, the Red Storm XT3s and the OctigaBay XD1s, supercomputer maker Cray has looked around at where it can cut costs and has decided that it can cut a significant number of employees who work in the OctigaBay facilities in the outskirts of Vancouver, British Columbia. Just before the holiday season got underway, and just after Cray's top brass were making the rounds talking up the converged Opteron strategy, Cray quietly filed its 8K with the U.S. Securities and Exchange Commission and said that it would cut 65 employees, or about 8 percent of its worldwide workforce.

According to the filing, the bulk of the layoffs will be done by the end of March, and almost all of the layoffs affect Cray's international sales, service, and engineering personnel, who were based in Burnaby, the former OctogaBay's headquarters outside of Vancouver. OctigaBay was founded in 2002 and went public with its unique Opteron supercomputer design in early 2004, only to be quickly snapped up by Cray, which knew that the OctigaBay 12K servers would be in trials at Sandia National Labs and Lawrence Livermore National Lab--the former being the client for which Cray's own Red Storm massively parallel Opteron-Linux machines was created for. Rather than face competition for its Red Storm, Cray paid $15 million in cash and $100 million in stock to buy OctigaBay only weeks after it went public. The move was a good one. Cray did not profit very much--if at all--from its Red Storm project for Sandia, although that work did fund an entirely new product line for the company. As of the end of 2005, Cray had sold some 16 XT3 machines, which is not a small number of footprints in the supercomputer market. But Cray has sold 90 of the XD1 machines, which is a much larger base.

Ironically, in 2007, the XT3 and XD1 lines will converge with the "Adams" and "Baker" Cray systems. This convergence will apparently be gradual. The reason why Cray is doing this is simple. The XD1 interconnect has a lower latency and it has a much cleaner Linux approach in that the XD1 compute nodes run stock Linux. OctigaBay built a better system in many ways, even if it cannot scale to the 60,000 processors and 300 teraflops of the full-blown Red Storm XT3 line. But, the former OctigaBay employees will bear the brunt of the layoffs.

In the 8K filing, Cray said that it had overlapping skills and was developing in multiple environments, and cutting employees was a way to shave about $7 million a year from its costs. However, having given these employees their pink slips, Cray expects to have to hire other employees to help it converge the XD1 and XT3 lines and continue development on its vector machines, so the net savings will be about $4 million a year.

Cray also said that it would be focusing more on the high end of the supercomputer market, where having feet on the street for sales and support around the globe is less of a necessity that either Cray or OctigaBay seemed to have anticipated. While Canada took most of the layoff hit, Cray did let go of an unspecified number of employees in its European operations, which it said were necessary to bring costs in line with sales in the European market.

A few weeks later, just before Christmas, Cray filed another 8K form and said that Peter Ungaro, the company's president and chief executive officer and a former supercomputer hot shot from IBM, had been given a retention bonus agreement worth 100 percent of his salary and any performance bonuses due for 2006 and worth 50 percent of the same in 2007. Margaret Williams, the senior vice president of engineering (hired from IBM's Software Group and a former engineer for parallel Unix systems at Big Blue) at Cray who came aboard in May 2005, was given the same retention bonus, as was Brian Henry, Cray's chief financial officer. Having lost supercomputer designer and Cray chief scientist Burton Smith to Microsoft in December, Cray is not taking any more chances on a brain drain or executive flight.

The question now is, what will all of those ex-OctigaBayers get up to? Sometimes it is as dangerous to let people go as it is to hold on to them.