Tera Computer Company Posts Third Quarter 1999 Results; Announces Excellent CMOS Test Results.

SEATTLE--(BUSINESS WIRE)--Oct. 28, 1999--

Tera Computer Company (Nasdaq NM: TERA), a leading developer and producer of high-performance computer systems, today reported results for the third quarter ended September 30, 1999.

In addition, the company today announced initial positive test results for two types of CMOS asics, an MTA processor chip and memory bank controller, the design of which had been taped-out and sent to the chip fabricator in July, 1999. This is a crucial step in the evolution of Tera's Multithreaded Architecture (MTA) high performance computers, as it will reduce costs and greatly improve testing, manufacturability and reliability. Accordingly, Tera is taking a non-cash reserve charge of approximately $6.4 million in the third quarter against its inventory of gallium arsenide processors, integrated circuits and associated components and parts accumulated over the past year. The Company plans to begin phasing out gallium arsenide components with CMOS chips - ahead of schedule -- beginning with production of the MTA-16 system.

Absent the non-cash reserve charge, Tera reported a third quarter net loss of $7.5 million, or ($0.32) per share, on revenues of $850,000 compared with a net loss of $4.2 million, or ($0.39) per share, on $232,000 in the year-ago quarter. The recent quarter's results also reflected approximately $2.7 million in costs comprised of payments to Cadence Design for CMOS engineering and design services and private placement related expenses. Of the 1999 third quarter revenue, $814,000 was from the sale of the four-processor upgrade MTA system to the San Diego Supercomputer Center; additional revenue for this sale of $300,000 will be recognized upon Congressional authorization of funds, expected in the fourth quarter. Including the inventory reserve charge, the net loss for the third quarter was $13.9 million, or ($0.59) per share.

"The third quarter was highlighted by the achievement of three important milestones," said Jim Rottsolk, Tera president and chief executive officer. "First, the San Diego Supercomputer Center (SDSC) accepted our MTA-8, which is currently producing application test results exceeding our expectations. Although we doubled the size of the system at SDSC, and the acceptance criteria were the most stringent so far, the actual acceptance process was the smoothest to date.

"Second, we made a major step toward commercialization with the July tape-out and current testing of our CMOS processor and memory control chips," Rottsolk said. "We received the chips back from Taiwan Semiconductor on schedule and had excellent initial yield and packaging results. The testing of the packaged parts has been better than anticipated and the initial testing results have confirmed our view that shipments to our customers in 2000 will be with CMOS components. As a result, we no longer expect to utilize the majority of our gallium arsenide inventory and have recorded the non-cash charge.

"Third, and most important," Rottsolk added, "We expect to ship an MTA-16 to SDSC, on track with our stated goal to double the number of processors in the MTA every six months. Furthermore, we are excited about reaching this milestone as I am confident that the MTA-16, with CMOS components, will mark Tera's entrance into full scale commercialization and sales in year 2000."

Explaining the significance of today's announcement on CMOS component test results, Jerry Loe, Tera's vice president of hardware engineering, stated, "These first silicon results mark an important milestone and represent two and a half years of continuing development effort on the part of Tera and our design partner, Cadence Design. CMOS parts reduce costs and greatly improve the testing, manufacturability and reliability of MTA systems. A single CMOS processor chip takes the place of 24 gallium arsenide chips on our processor board, and each memory controller chip replaces three GaAs asics on memory boards. We have extended our agreement with Cadence Design for additional back-end support to fully implement all of our technology in CMOS."

Additionally, as Tera's MTA technology advances, it is gaining prominence. Reporting on the state of the supercomputer industry, an August 16, 1999 Forbes Digital Tool (forbes.com) article stated that in recent years, the vector design has been overshadowed by a concept called parallel processing. The report discusses Tera and its MTA supercomputer at the SDSC and quotes Mike Vildibill, Center Deputy Director, "The computer science community is just wild about multithreaded architecture." The report may be found at http://forbes.com/tool/html/99/aug/0816/featb.htm.

In the October issue of Electronic Products, Tera's approach to supercomputer processing is also featured in the article entitled Multithreading Appears in Hardware Architectures. The article goes on to explain how the MTA processor keeps multiple tasks, each with its own threads, ready to slip into pipeline bubbles in a single clock. The link can be searched at http://electronicproducts.com/ep.asp.

About Tera Computer Company

Tera Computer Company designs, builds and sells high performance general-purpose parallel computer systems. Tera believes its Multithreaded

Architecture system represents the next wave in supercomputer technology because of its unique ability to provide high performance, broad applicability and ease of programming in a single system. For more information about Tera and its MTA systems, contact Tera at 411 First Avenue South, Suite 600, Seattle, WA 98104-2860. Phone: [phone]. Fax: [phone]. E-mail: [e-mail], or www.tera.com.

Tera's Progress Report: Summer 1999 video is now available on VHS or CD - copies can be requested by visiting the Tera website at www.tera.com. Among those interviewed on this video are Sid Karin, SDSC's Director; Wayne Pfeiffer, SDSC's Deputy Director; Rich Charles, Greg Johnson and Allan Snavely, scientists at SDSC; and Professor David McQueen, a medical researcher at New York University's Courant Institute.

Further information on Tera's MTA system architecture, including results on the MTA-8 at SDSC, can be found in the white paper entitled "Multhreaded Architecture - High Performance Parallel Computer with Scalable Shared Memory" on the Tera Website at www.tera.com.

Safe Harbor Statement

This press release contains forward-looking statements, among other things, Tera's plans to double the performance of its MTA systems every six months. There are certain factors that could cause Tera's execution plans to differ materially from those anticipated by the statements above. Among such factors are risks associated with building larger MTA systems, necessary modifications to software and hardware systems and timely availability of commercially acceptable components from third party suppliers. For a discussion of such risks, and other risks that could affect Tera's future performance, please see "Risk Factors" in Tera's most recent SEC Form 10-Q. -0-

                         TERA COMPUTER COMPANY
                       STATEMENTS OF OPERATIONS
                              (unaudited)

                                         Three Months Ended
                                            September 30,
                                     1998                  1999
                                ----------------     ---------------
REVENUE                         $   231,655          $    849,835
                                ----------------     ---------------
OPERATING EXPENSES:
 Cost of sales                      209,383               971,612
 Manufacturing costs and
  inventory adjustments             919,843             1,625,543
 Inventory obsolescence charge                          6,441,229
 Research and development         2,424,720             4,802,044
 Marketing and sales                484,165               611,279
 General and administrative         516,316               551,337
                                ----------------     ---------------
                                  4,554,427            15,003,044
                                ----------------     ---------------
RESEARCH FUNDING                    105,565                50,000
                                ----------------     ---------------
    Loss from operations         (4,217,207)          (14,103,209)

OTHER INCOME / (EXPENSE)             63,330               168,826
                                ----------------     ---------------

NET LOSS                         (4,153,877)          (13,934,383)

AMORTIZATION OF PREFERRED
   STOCK DIVIDEND                  (464,733)

PREFERRED STOCK DIVIDEND           (141,300)

LOSS FOR COMMON STOCK          $ (4,759,910)        $ (13,934,383)
                                ================     ===============


LOSS PER COMMON SHARE,
  BASIC AND DILUTED            $      (0.39)        $       (0.59)
                                ================     ===============


WEIGHTED AVERAGE SHARES
  OUTSTANDING, BASIC
  AND DILUTED                    12,258,238            23,769,199
                                ================     ===============




                                          Nine Months Ended
                                            September 30,
                                      1998                1999
                                ----------------     ---------------
REVENUE                         $   1,779,210        $  1,770,805
                                ----------------     ---------------
OPERATING EXPENSES:
  Cost of sales                     1,654,398           1,735,042

  Manufacturing costs and
     inventory adjustments            919,843           5,663,920
  Inventory obsolescence charge                         6,441,229
  Research and development         10,299,279          11,593,789
  Marketing and sales               1,268,554           1,788,908
  General and administrative        1,496,551           1,654,063
                                ----------------     ---------------
                                   15,638,625          28,876,951
                                ----------------     ---------------
RESEARCH FUNDING                      181,348             122,197
                                ----------------     ---------------
    Loss from operations          (13,678,067)        (26,983,949)

OTHER INCOME / (EXPENSE)              163,648            (433,422)
                                ----------------     ---------------
   NET LOSS                       (13,514,419)        (27,417,371)

AMORTIZATION OF PREFERRED
 STOCK DIVIDEND                      (464,733)


PREFERRED STOCK DIVIDEND             (365,611)           (115,341)
                                ----------------     ---------------

LOSS FOR COMMON STOCK       $     (14,344,763)   $    (27,532,712)
                                ================     ===============

LOSS PER COMMON SHARE,
  BASIC AND DILUTED         $           (1.22)   $          (1.31)

                                ================     ===============

WEIGHTED AVERAGE SHARES
  OUTSTANDING, BASIC
  AND DILUTED                      11,785,680          21,063,711
                                ================     ===============



                         TERA COMPUTER COMPANY
                       CONDENSED BALANCE SHEETS

                                  December 31,        September 30,
                                     1998                 1999
                                 ------------         ------------
                                                      (unaudited)
ASSETS
 Cash and cash equivalents      $  3,161,867         $ 16,377,547
 Restricted cash                                         544,379
 Accounts receivable                 685,752            1,536,986
 Inventory                        10,246,029            3,743,422
 Property and equipment, net       4,501,613            5,622,220
 Other assets                      1,692,976            1,144,785
                                 ------------         ------------
    TOTAL                       $ 20,288,237         $ 28,969,339

===================== =====================
                                 ============         ============

LIABILITIES AND
 SHAREHOLDERS' EQUITY
 Current liabilities            $  7,825,896         $  7,066,145
 Non-current liabilities             573,054            1,101,479
 Shareholders' equity             11,889,287           20,801,715
                                 ------------         ------------
    TOTAL                       $ 20,288,237         $ 28,969,339
                                 ============         ============