Warning drives Cray lower

Cray Electronics saw its already hard-pressed share price fall another 16.5p to 47p yesterday after its chairman issued a warning to shareholders that acceptable profits were taking longer to achieve than expected.

Roger Holland, chairman of the data communications and software systems group, told the annual meeting that further restructuring was needed. Cray has already cut 250 jobs and incurred pounds 9m in reorganisation costs in the year to April.

Progress in restoring satisfactory profitability has been slower than is acceptable to the board, Mr Holland told the shareholders. As a result, the management are implementing further changes.

In particular, rationalisation of product lines in the UK and Denmark is being accelerated, as is the transition to new development technologies.

This was expected to result in additional first half costs for Cray Communications including stock writedowns and redundancies. While this was disappointing, the board felt it was imperative to exploit the potential offered by the rapidly changing and expanding data communications markets.

For the group overall, the order rate and turnover for the first quarter were ahead of the same period last year. At both Cray Systems - the computer software company - and P-E International, the management consultancy, progress continues and growth is planned for the current year. Mike Shone, chief executive of Cray Systems since 1990, joins the group board.

The City originally expected profits of pounds 32m for the year to April which turned out in fact to be just pounds 800,000. The share price has fallen by roughly two thirds this year.

Profits were all but wiped out by a mishandled expansion at the data communications division. Manufacturing problems led to lost or delayed orders,helping profits to nosedive from pounds 25m to pounds 2m.