--Intel to buy Cray supercomputer networking assets

--Intel paying $140 million in cash for technology

--Cray shares soar on the news

(Updates with additional details and comments from Cray CEO beginning in the second paragraph.)

By Shara Tibken

Of Dow Jones NEWSWIRES

NEW YORK -(Dow Jones)- Intel Corp. (INTC) agreed to purchase certain networking assets from supercomputer maker Cray Inc. (CRAY) for $140 million in cash, giving the chip company a boost in the high-performance computing market and strengthening Cray's balance sheet.

Intel will be buying interconnect technology and related intellectual property from Cray, which Cray has been using in its high-performing computers. The technology--including 35 hardware patents, or about 15% of Cray's patent portfolio--connects the different processors together, allowing data to pass quickly between them.

Cray shares, which were halted ahead of the news, jumped 24% to $8.75 after-hours when trading was resumed. Cray had a market capitalization of $259 million at Tuesday's close. Intel shares, meanwhile, rose 1% to $27.58 in after-hours trading.

The transaction is expected to close by the end of the current quarter, and up to 74 of Cray's 875 employees will be joining Intel. Cray said along with the cash boost, the lower headcount will lead to cost savings in future periods, with a "relatively modest amount" of the benefit expected in 2012.

"This is a huge cash infusion, and we still maintain control over our roadmap and differentiating technology," Cray Chief Executive Peter Ungaro said in an interview. "We also get the ability to have a much stronger business model overall for our company, and we get to continue developing highly differentiated systems. It's a big win for us and for Intel, as well as our customers and shareholders."

He declined to provide details about the financial impact but said Cray will give more information during the company's quarterly earnings call Thursday. It also will host a conference call Wednesday to discuss the deal.

A spokesman from Intel, meanwhile, said interconnect is "another area in high-performance computing that's ripe for innovation." He added that Cray has the "best-in-class personnel and IP to do that with."

Supercomputers help tackle the toughest scientific problems, including simulating commercial products like new drugs and defense-related applications such as weapons design and code breaking. Most of the biggest machines are used in government-owned labs, but many smaller variants have been used by companies for years in designing products like cars and drugs.

High-performance computing has been a big focus for Intel and fellow semiconductor makers Advanced Micro Devices Inc. (AMD) and Nvidia Corp. (NVDA). While supercomputing isn't a high-volume business, the processors typically are top-performing and command higher prices.

Intel has scooped up several companies of late that provide supercomputing technology. Similar to the Cray deal, Intel bought QLogic Corp.'s (QLGC) InfiniBand networking assets earlier this year for $125 million in cash.

Diane Bryant, general manager of Intel's datacenter and connected system group, noted that the acquisition of Cray's assets will help Intel achieve "exascale" computing performance, or a quintillion operations per second. That is a hundred times more than today's fastest supercomputers, and Intel hopes to reach the goal by 2018.

As for Cray, the company said it will continue to develop, sell and support current product lines, as well as its next-generation supercomputer code-named "Cascade." It also will be able to leverage "important differentiating features of certain future Intel products," and it will be able to use the transferred technology in Cray products.

"Both Cray and Intel are forming a partnership and collaboration not only about bringing that technology out to market but helping ensure their future technology makes its way into high-end supercomputers that we develop," Ungaro said.

He added the agreement was structured in such a way that competitors won't get an advantage over Cray with the company's own technology. The current interconnect will go into Cray's supercomputers, he said, and the company will have control over deciding if anyone else can use the current product. Intel, meanwhile, will use the base technology to develop future products that use Cray's intellectual property.

"One of the advantages we have in working in the high end of supercomputing is we get to see new technology trends and how that technology is changing in the market over time," Ungaro said. "What we know is that more and more of the core techologies are being integrated on the exact same chip the processor is on...As we looked at the trends, that really was something we could take advantage of."

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com