Sun Microsystems Delivers Another Solid Quarter

SANTA CLARA, Calif.--(EON:Enhanced Online News)--Sun Microsystems, Inc. (NASDAQ:JAVA) reported results today for its fiscal first quarter, which ended September 30, 2007.

“We showed continued execution and operating discipline and delivered a very solid first quarter with continued revenue growth, profitability and gross margin expansion”

Revenues for the first quarter of fiscal 2008 were $3.219 billion, an increase of approximately 1 percent as compared with $3.189 billion for the first quarter of fiscal 2007. Total gross margin as a percent of revenues was 48.5, an increase of 5.0 percentage points, as compared with the first quarter of fiscal 2007.

Net income for the first quarter of fiscal 2008 on a GAAP basis was $89 million, or $0.03 per share on a diluted basis, as compared with a net loss of $56 million, or ($0.02) per share, for the first quarter of fiscal 2007. GAAP net income for the first quarter of fiscal 2008 includes a $113 million restructuring charge, which equates to $0.03 per share.

Cash generated from operations for the first quarter of fiscal 2008 was $574 million, and cash and marketable debt securities balance at the end of the quarter was $5.193 billion.

"We showed continued execution and operating discipline and delivered a very solid first quarter with continued revenue growth, profitability and gross margin expansion," said Jonathan Schwartz, CEO of Sun Microsystems. "We saw particular strength in our high-end systems lineup, good growth in our subscription-based identity management software offerings, and even more adoption and momentum behind the award-winning open source Solaris^TM 10 Operating System and our virtualization offerings. Growth remains our top priority for fiscal 2008 as we look to capitalize on our UltraSPARC^® T2 servers, delivering outstanding Solaris and Linux performance with extreme energy efficiency."

Sun has scheduled a conference call today to discuss its financial results for the first quarter fiscal year 2008 at 1:30 p.m. (PT), which is being broadcast live at www.sun.com/investors.

About Sun Microsystems, Inc.

Sun Microsystems develops the technologies that power the global marketplace. Guided by a singular vision -- "The Network is the Computer^TM" -- Sun drives network participation through shared innovation, community development and open source leadership. Sun can be found in more than 100 countries and on the Web at http://sun.com

Sun, Sun Microsystems, the Sun logo, Solaris, Java and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and other countries. All SPARC trademarks are used under license and are trademarks or registered trademarks of SPARC International, Inc. in the US and other countries. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding Sun's future growth. These forward-looking statements involve risks and uncertainties and actual results could differ materially from those predicted in any such forward-looking statements. Factors that could cause Sun’s actual results to differ materially from those contained in such forward-looking statements include: risks associated with developing, designing, manufacturing and distributing new products; lack of success in technological advancements; pricing pressures; lack of customer acceptance and implementation of new products and technologies; the possibility of errors or defects in new products; a material acquisition, restructuring or other event that results in significant charges; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; Sun's reliance on single-source suppliers; risks associated with Sun's ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with Sun's international customers and operations; delays in product development; Sun's dependence on significant customers and specific industries; and Sun's dependence on channel partners. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2007. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in millions, except per share amounts)
		Three Months Ended
		September 30, 2007			October 1, 2006
Net revenues:
Products		$	1,980		$	1,959
Services			1,239			1,230
Total net revenues			3,219			3,189
Cost of sales:
Cost of sales-products (including stock-based compensation expense of $3 and $3) (1)			1,029			1,123
Cost of sales-services (including stock-based compensation expense of $8 and $8) (1)			629			678
Total cost of sales			1,658			1,801
Gross margin			1,561			1,388
Operating expenses:
Research and development (including stock-based compensation expense of $14 and $18) (1)			446			473
Selling, general and administrative (including stock-based compensation expense of $23 and $29) (1)			939			958
Restructuring and related impairment of long-lived assets			113			21
Total operating expenses			1,498			1,452
Operating profit (loss)			63			(64	)
Gain on equity investments, net			22			-
Interest and other income, net			58			42
Income (loss) before income taxes			143			(22	)
Provision for income taxes			54			34
Net income (loss)		$	89		$	(56	)
Net income (loss) per common share-basic and diluted		$	0.03		$	(0.02	)
Shares used in the calculation of net income (loss) per common share-basic			3,464			3,497
Shares used in the calculation of net income (loss) per common share-diluted			3,537			3,497
(1) For the three months ended September 30, 2007 and October 1, 2006, respectively.

SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions)
		September 30, 2007			June 30, 2007(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	2,752		$	3,620
Short-term marketable debt securities			1,067			962
Accounts receivable, net			2,203			2,964
Inventories			571			524
Deferred and prepaid tax assets			214			200
Prepaid expenses and other current assets			1,083			1,058
Total current assets			7,890			9,328
Property, plant and equipment, net			1,556			1,533
Long-term marketable debt securities			1,374			1,360
Goodwill			2,466			2,514
Other acquisition-related intangible assets, net			559			633
Other non-current assets			513			470
		$	14,358		$	15,838
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,140		$	1,381
Accrued payroll-related liabilities			649			842
Accrued liabilities and other			1,044			935
Deferred revenues			1,944			2,073
Warranty reserve			217			220
Total current liabilities			4,994			5,451
Long-term debt			1,270			1,264
Long-term deferred revenues			630			659
Other non-current obligations			1,271			1,285
Total stockholders’ equity			6,193			7,179
		$	14,358		$	15,838
(1) Derived from audited financial statements

SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in millions)
		Three Months Ended
		September 30, 2007			October 1, 2006
Cash flows from operating activities:
Net income (loss)		$	89		$	(56)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			119			123
Amortization of other acquisition related intangible assets			74			81
Deferred taxes			8			(3)
Impairment of assets			-			8
Gain on investments and other, net			(17)			-
Stock-based compensation expense			48			58
Changes in operating assets and liabilities:
Accounts receivable, net			770			672
Inventories			(44)			(71)
Prepaid and other assets			(46)			2
Accounts payable			(283)			(151)
Other liabilities			(144)			(540)
Net cash provided by operating activities			574			123
Cash flows from investing activities:
Decrease in restricted cash			3			-
Purchases of marketable debt securities			(637)			(675)
Proceeds from sales of marketable debt securities			251			515
Proceeds from maturities of marketable debt securities			269			136
Proceeds from sales of equity investments, net			30			7
Purchases and sales of property, plant and equipment			(127)			160
Net cash provided by (used in) investing activities			(211)			143
Cash flows from financing activities:
Purchase of common stock under 2007 Stock Repurchase Plan			(1,250)			-
Proceeds from issuance of common stock, net			23			27
Principal payments on borrowings and other obligations			(4)			(500)
Net cash used in financing activities			(1,231)			(473)
Net decrease in cash and cash equivalents			(868)			(207)
Cash and cash equivalents, beginning of period			3,620			3,569
Cash and cash equivalents, end of period		$	2,752		$	3,362

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