Cray, FPS switch to on again

Electronic News, Nov 18, 1991 by Craig Stedman

EAGAN, Minn. -- Cray Research Inc., in a bizarre series of events reportedly triggered by confusion among top executives, agreed last week to go ahead with a purchase of Floating Point Systems just three days after pulling out of the deal because it didn't fit the company's "strategic interests."

The initial rejection, which led FPS to shut down all operations except field service, in turn came just a week after Cray president and chief operating officer John Carlson signed a final purchase agreement with executives of the struggling Beaverton, Ore., scientific computer maker.

Cray's back-and-forth indecision apparently resulted from senior management disagreements over the wisdom of the $3.25 million purchase, which would bring the company a Sparc-based system -- forcing a change to its strategy of having binary compatibility across its product line.

Industry observers noted that the FPS buy would be a much more offensive maneuver than the 1989 purchase of Cray-compatible vendor Supertek. The company's executives reportedly had second thought about making such a move, before finally deciding that the Sparc market had too much potential to ignore.

Their exact plans for the FPS assets remained unclear, however. A Cray spokesman said the Sparc technology would be used "in a way that's different from our original plan" set after a letter of intent was signed last month (EN, Oct. 14), but he would not elaborate on the new strategy.

The spokesman also would not say how many of the 200 FPS workers laid off last week would be rehired, adding that the matter was still being reviewed. He even declined to comment on when the company expects to close on the deal, which originally was to have been completed by Nov. 15.

Howard Thrailkill, FPS president and chief executive, confirmed earlier expectations that Cray originally intented to run the FPS operation as a standalone subsidiary that would continue marketing the Sparc-based FPS 500 Series machine brought out last March as a workstation file server.

Cray executives gave Mr. Thrailkill no indication that those plans had changed when they notified FPS that they were again going ahead with deal. He said he still expects Cray "to treat it as a subsidiary and to drive the (Sparc) technology forward very, very aggressively."

Mr. Thrailkill was not given a reason for Cray's flip-flop and was at a loss to explain the baffling turn of events. "You'll have to get them to explain it," he said. "I absolutely do not understand what's going on, except that this is a good outcome for our customers and our people."

Requests for an interview with Mr. Carlson or another member of Cray's executive committee were not met. The Cray spokesman confirmed that different management factions held diverging views on the acquisition plans, although he said such variances are "always the case with any deal."

Despite last Monday's statement from Cray chairman and chief executive John Rollwagen that the FPS purchase "does not fit the strategic interests of the company," the spokesman acknowledged that a view emerged within management "that maybe we should look at it a different way."

The executive committee later decided unanimously to reverse field a second time and approve the purchase, according to the spokesman. "I guess we look a little silly, but that's OK," he said. "We're not concerned abut looking bad. We're concerned about making an inappropriate decision for our company and our strategy, and we think we made the right one for the right reasons."

Mr. Thrailkill had said before the reversal that he was considering the possibility of legal action against Cray because it did not exercise any of the escape clauses included in the Nov. 1 purchase agreement signed by Mr. Carlson when it first gave notice that the deal was being dropped.

Lawyers for the companies were discussing that issue last week, but both sides said it was unlikely that had a major impact on Cray's decision to proceed. "I know the people involved (at Cray), and I can't imagine they would be intimidated by anything like that," Mr. Thrailkill said.

It also doesn't appear that Cray's board of directors was involved in the decision-making process. The board gives management "a certain amount of latitude in these matters" and did not have to approve the final purchase agreement, the company spokesman said -- a reading that squared with Mr. Thrailkill's understanding of the situation.

There were indications, meanwhile, that Sparc developer Sun Microsystems may have done some lobbying with Cray on behalf of EPS. "We're obviously in the Sparc camp and Sun is a major player there," Mr. Thrailkill said, but he declined to make a specific comment on that aspect

The purchase still needs to be approved by the U.S. Bankruptcy Court in Portland, Ore., where FPS filed for Chapter 11 bankruptcy protection in October after an unsuccessful search for new financing. A hearing was set on the matter for Dec. 2, so nothing is likely to happen before then.