8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 1, 2008

Sun Microsystems, Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-15086	94-2805249
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

4150 Network Circle Santa Clara, California	95054-1778
(Address of Principal Executive Offices)	(Zip Code)

(650) 960-1300

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On May 1, 2008, Sun Microsystems, Inc. (“Sun”) issued a press release regarding Sun’s financial results for the fiscal quarter ended March 30, 2008. The full text of Sun’s press release, together with the related Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows and Operations Analysis—Consolidated, are attached hereto as Exhibit 99.1.

The press release and the related conference call contain non-GAAP financial measures. Sun utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating decisions and for forecasting and planning future periods. These non-GAAP financial measures include EBITDA and Adjusted EBITDA. EBITDA is defined as earnings before net interest, taxes, amortization of acquisition related intangibles and other depreciation and amortization. Sun further excludes stock-based compensation, gain on equity investments, net, and settlement income to determine Adjusted EBITDA. These measures are used by some investors when assessing the performance of Sun. Sun believes the assessment of its operations excluding these items is relevant to the assessment of internal operations and comparisons to industry performance.

Reasons for Presenting Non-GAAP Measures. Sun believes these non-GAAP measures help indicate Sun’s baseline performance before gains, losses or charges that are considered by Sun to be outside on-going operating results. Accordingly, Sun uses these non-GAAP measures to gain a better understanding of Sun’s comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Sun believes these non-GAAP measures, when read in conjunction with Sun’s GAAP financials, provide useful information to investors by offering:

- the ability to make more meaningful period-to-period comparisons of Sun’s on-going operating results;

- the ability to better identify trends in Sun’s underlying business and perform related trend analysis;

- a better understanding of how management plans and measures Sun’s underlying business; and

- an easier way to compare Sun’s most recent results of operations against investor and analyst financial models.

Items Excluded From Non-GAAP Measures. As described above, the calculation of Adjusted EBITDA (and, in some cases, EBITDA) excludes items in the following general categories, which are discussed in more detail below:

Stock-based Compensation. Stock-based compensation is a key incentive offered to our employees, and Sun believes such compensation contributed to the revenues earned during the periods presented and also believes it will contribute to the generation of future period revenues. Nevertheless, Sun believes that the exclusion of non-cash stock-based compensation allows management and investors to compare Sun’s recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use to account for stock-based compensation under FAS 123R, Sun’s management believes that providing a non-GAAP financial measure that excludes stock-based compensation allows investors to make meaningful comparisons between Sun’s recurring core business operating results and those of other companies, as well as providing Sun’s management with an important tool for financial and operational decision making and for evaluating Sun’s own recurring core business operating results over different periods of time. In addition, Sun prepares and maintains its budgets and forecasts for future periods excluding stock-based compensation. Stock-based compensation expenses will recur in future periods.

Amortization of Acquisition Related Intangibles. Sun excludes amortization of intangible assets resulting from acquisitions to allow more accurate comparisons of its financial results to its historical operations, forward-looking guidance and the financial results of peer companies. In recent years, Sun has completed the acquisition of StorageTek and the acquisition of other assets and technologies, which resulted in operating expenses that would not otherwise have been incurred. Sun believes that providing a non-GAAP financial measure that excludes the amortization of intangible assets provides the users of its financial statements an enhanced understanding of historic and future financial results and facilitates comparisons to peer companies. Additionally, had Sun internally developed these intangible assets, the amortization of intangible assets would have been expensed historically, and Sun believes the assessment of its operations excluding these costs is relevant to the assessment of internal operations and comparisons to industry performance. Amortization of Acquisition Related Intangibles will recur in future periods.

Net Interest Expense, Taxes, Other Depreciation and Amortization, Net Gain (Loss) on Equity Investments and Settlement Income. Sun excludes these items because it believes that they are not directly related to the underlying performance of Sun’s core business operations. Each of these items are expected to recur in future periods.

Limitations. Each of the non-GAAP financial measures described above, and used in the press release and the related conference call, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in Sun’s financial results for the foreseeable future. In addition, other companies, including other companies in Sun’s industry, may calculate non-GAAP financial measures differently than Sun does, limiting their usefulness as a comparative tool. Sun compensates for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, Sun evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial information.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibit is filed herewith:

Exhibit Number	Description
99.1	Text of press release issued by Sun Microsystems, Inc., dated May 1, 2008, titled “Sun Microsystems Reports Third Quarter Fiscal Year 2008 Results,” together with related Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows and Operations Analysis - Consolidated.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: May 1, 2008

SUN MICROSYSTEMS, INC.
By:	/s/ Michael E. Lehman
	Michael E. Lehman
	Chief Financial Officer and Executive
	Vice President, Corporate Resources

EXHIBIT INDEX

Exhibit No.	Description
99.1	Text of press release issued by Sun Microsystems, Inc., dated May 1, 2008, titled “Sun Microsystems Reports Third Quarter Fiscal Year 2008 Results,” together with related Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows and Operations Analysis – Consolidated.

EX-99.1

Exhibit 99.1

PRESS RELEASE

Sun Microsystems Reports Third Quarter Fiscal Year 2008 Results

SANTA CLARA, Calif.—May 1, 2008—Sun Microsystems, Inc. (NASDAQ: JAVA) reported results today for its fiscal third quarter, which ended March 30, 2008.

Revenues for the third quarter of fiscal 2008 were $3.266 billion, a decrease of 0.5 percent as compared with $3.283 billion for the third quarter of fiscal 2007. Total gross margin as a percent of revenues was 44.9, an increase of 0.4 percentage points, as compared with the third quarter of fiscal 2007.

Net loss for the third quarter of fiscal 2008 on a GAAP basis was $34 million, or $(0.04) per share, as compared with net income of $67 million, or $0.07 per share, for the third quarter of fiscal 2007. In the third quarter of fiscal 2008, the company recorded a $52 million dollar tax provision, as compared to a tax benefit of $3 million in the third quarter of fiscal 2007. Net loss for the third quarter included charges related to the acquisition of MySQL, which reduced earnings per share by approximately $0.04.

Cash generated from operations for the third quarter of fiscal 2008 was $329 million, and the cash and marketable debt securities balance at the end of the quarter was $3.801 billion. During the third quarter, Sun continued to leverage its cash position, spending $300 million to repurchase 17.5 million shares of its common stock. There is currently $500 million remaining of the $3 billion share repurchase program announced in the company’s fiscal fourth quarter of 2007.

“The U.S. economy presented Sun with significant challenges in the third quarter, masking our progress in developing nations and economies across the world,” said Jonathan Schwartz, CEO of Sun Microsystems. “With double digit year-over-year growth in India and Brazil, and triple digit year-over-year billings growth in our energy efficient Solaris^TM-based Chip Multi-Threading (CMT) systems, Sun made considerable progress during the quarter. We continue to invest in the future created by open alternatives to proprietary technologies, best exemplified by the acquisition of MySQL. The world is moving to open source innovation, and Sun continues to lead that revolution.”

Third Quarter Highlights

• Sun reported year-over-year revenue growth in 12 out of its 16 sales geographies during the third quarter, with double-digit revenue growth in key international markets across EMEA, Asia Pacific and the International Americas.

• From a product perspective, Solaris^TM-based Chip Multi-Threading (CMT) systems billings more than doubled year-over-year, with the Company’s blade systems also delivering impressive billings growth fueled by Sun’s comprehensive portfolio spanning AMD Opteron^TM, Intel Xeon^® and Sun UltraSPARC^® offerings.

• Furthering its presence in the open source software marketplace, Sun announced the close of two significant acquisitions: MySQL, the world’s most popular open source database provider, and innotek, whose VirtualBox^TM products provide free desktop virtualization.

• Sun signed a landmark collaboration agreement with The People’s Republic of China Ministry of Education to cultivate

integrated circuit engineering talent and industry development based upon Sun’s OpenSPARC^TM open source silicon platform.

• Sun was awarded significant contracts including funding from the Defense Advanced Research Projects Agency (DARPA) for a five and a half year research project focused on microchip interconnectivity via on-chip optical networks enabled by silicon photonics and proximity communication.

Sun has scheduled a conference call today to discuss its financial results for the third 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, Sun Fire, Java, innotek, VirtualBox, MySQL and The Network is the Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and other countries.

AMD and Opteron are trademarks or registered trademarks of Advanced Micro Devices.

Intel and Intel Xeon are trademarks or registered trademarks of Intel Corporation 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 United States and other countries. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc.

UNIX is a registered trademark in the United States and other countries, exclusively licensed through X/Open Company, Ltd.

Billings represents amounts invoiced to customers in a period.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding future investments and industry trends. 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 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 2007 and December 30, 2007. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

Investor Contact:

Ron Pasek

650-786-8008

ron.pasek@sun.com

Press Contact:

Kristi Rawlinson

650-786-6933

kristi.rawlinson@sun.com

Industry Analyst Contact:

Melissa Selcher

650-787-1807

melissa.selcher@sun.com

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

	Three Months Ended						Nine Months Ended
	March 30, 2008			April 1, 2007			March 30, 2008		April 1, 2007
Net revenues:
Products	$	2,003		$	2,060		$	6,232	$	6,279
Services		1,263			1,223			3,868		3,759
Total net revenues		3,266			3,283			10,100		10,038
Cost of sales:
Cost of sales-products (1)		1,106			1,148			3,296		3,499
Cost of sales-services (1)		692			674			2,022		2,086
Total cost of sales		1,798			1,822			5,318		5,585
Gross margin		1,468			1,461			4,782		4,453
Operating expenses:
Research and development (1)		457			514			1,366		1,494
Selling, general and administrative (1)		989			957			2,923		2,893
Restructuring charges and related impairment of long-lived assets		14			35			159		82
Purchased in-process research and development		24			—			25		—
Total operating expenses		1,484			1,506			4,473		4,469
Operating income (loss)		(16	)		(45	)		309		(16	)
Gain on equity investments, net		—			5			22		5
Interest and other income, net		34			104			145		209
Income before income taxes		18			64			476		198
Provision (benefit) for income taxes		52			(3)			161		54
Net income (loss)	$	(34	)	$	67		$	315	$	144
Net income (loss) per common share-basic	$	(0.04	)	$	0.08	(2)	$	0.38	$	0.16	(2)
Net income (loss) per common share-diluted	$	(0.04	)	$	0.07	(2)	$	0.38	$	0.16	(2)
Shares used in the calculation of net income (loss) per common share-basic		785			887	(2)		821		881	(2)
Shares used in the calculation of net income (loss) per common share-diluted		785			915	(2)		837		900	(2)
(1)    Includes stock-based compensation expense as follows:
Cost of sales-products	$	3		$	3		$	8	$	10
Cost of sales-services	$	10		$	8		$	28	$	24
Research and development	$	17		$	15		$	47	$	49
Selling, general and administrative	$	27		$	24		$	74	$	83

(2) Amounts have been restated to reflect the one-for-four reverse stock split effective November 12, 2007.

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

	March 30, 2008		June 30, 2007(1)
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,363	$	3,620
Short-term marketable debt securities		664		962
Accounts receivable, net		2,405		2,964
Inventories		735		524
Deferred and prepaid tax assets		223		200
Prepaid expenses and other current assets		1,106		1,058
Total current assets		7,496		9,328
Property, plant and equipment, net		1,584		1,533
Long-term marketable debt securities		774		1,360
Goodwill		3,288		2,514
Other acquisition-related intangible assets, net		611		633
Other non-current assets		509		470
	$	14,262	$	15,838
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,306	$	1,381
Accrued payroll-related liabilities		724		842
Accrued liabilities and other		1,128		961
Deferred revenues		1,979		2,047
Warranty reserve		204		220
Total current liabilities		5,341		5,451
Long-term debt		1,275		1,264
Long-term deferred revenues		627		659
Other non-current obligations		1,229		1,285
Total stockholders’ equity		5,790		7,179
	$	14,262	$	15,838

(1) Derived from audited financial statements.

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

	Nine Months Ended
	March 30, 2008			April 1, 2007
Cash flows from operating activities:
Net income	$	315		$	144
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization		353			388
Amortization of acquisition related intangible assets		225			239
Deferred taxes		8			(20	)
Impairment of long-lived assets		—			16
Gain on investments and other, net		(54	)		—
Stock-based compensation expense		157			166
Purchased in-process research and development		25			—
Changes in operating assets and liabilities:
Accounts receivable, net		603			265
Inventories		(205	)		(51	)
Prepaid and other assets		(105	)		(104	)
Accounts payable		(114	)		(222	)
Other liabilities		31			(427	)
Net cash provided by operating activities		1,239			394
Cash flows from investing activities:
Decrease (increase) in restricted cash, net		22			(4	)
Purchases of marketable debt securities		(1,292	)		(2,465	)
Proceeds from sales of marketable debt securities		1,404			1,041
Proceeds from maturities of marketable debt securities		764			523
Proceeds from sales of equity investments, net		25			8
Purchases of property, plant and equipment, net		(297	)		(73	)
Payments for acquisitions, net of cash acquired		(923	)		(10	)
Net cash used in investing activities		(297	)		(980	)
Cash flows from financing activities:
Purchase of common stock call options		—			(228	)
Sale of common stock warrants		—			145
Purchase of common stock under 2007 Stock Repurchase Plan		(2,300	)		—
Proceeds from the exercise of common stock options, net		121			176
Proceeds from issuance of convertible notes, net		—			692
Principal payments on borrowings and other obligations		(20	)		(476	)
Net cash (used in) provided by financing activities		(2,199	)		309
Net decrease in cash and cash equivalents		(1,257	)		(277	)
Cash and cash equivalents, beginning of period		3,620			3,569
Cash and cash equivalents, end of period	$	2,363		$	3,292

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

STATEMENTS OF OPERATIONS	FY 2008								FY 2007										FY 2006
(in millions except per share amounts)	Q1		Q2		Q3		FY08		Q1		Q2		Q3		Q4		FY07		Q3		Q4		FY06
NET REVENUES
Products	1,980		2,249		2,003		6,232		1,959		2,260		2,060		2,492		8,771		2,035		2,524		8,371
Services	1,239		1,366		1,263		3,868		1,230		1,306		1,223		1,343		5,102		1,142		1,304		4,697
TOTAL	3,219		3,615		3,266		10,100		3,189		3,566		3,283		3,835		13,873		3,177		3,828		13,068
Growth vs. prior year (%)	0.9	%	1.4	%	-0.5	%	0.6	%	17.0	%	6.9	%	3.3	%	0.2	%	6.2	%	20.9	%	28.7	%	18.0	%
Growth vs. prior quarter (%)	-16.1	%	12.3	%	-9.7	%			-16.7	%	11.8	%	-7.9	%	16.8	%			-4.8	%	20.5	%
COST OF SALES
Products	1,029		1,161		1,106		3,296		1,123		1,228		1,148		1,312		4,811		1,152		1,486		4,827
Services	629		701		692		2,022		678		734		674		711		2,797		658		703		2,612
TOTAL	1,658		1,862		1,798		5,318		1,801		1,962		1,822		2,023		7,608		1,810		2,189		7,439
% of revenue	51.5	%	51.5	%	55.1	%	52.7	%	56.5	%	55.0	%	55.5	%	52.8	%	54.8	%	57.0	%	57.2	%	56.9	%
GROSS MARGIN
Products	951		1,088		897		2,936		836		1,032		912		1,180		3,960		883		1,038		3,544
% of product revenue	48.0	%	48.4	%	44.8	%	47.1	%	42.7	%	45.7	%	44.3	%	47.4	%	45.1	%	43.4	%	41.1	%	42.3	%
Services gross margin	610		665		571		1,846		552		572		549		632		2,305		484		601		2,085
% of service revenue	49.2	%	48.7	%	45.2	%	47.7	%	44.9	%	43.8	%	44.9	%	47.1	%	45.2	%	42.4	%	46.1	%	44.4	%
TOTAL GROSS MARGIN	1,561		1,753		1,468		4,782		1,388		1,604		1,461		1,812		6,265		1,367		1,639		5,629
% of revenue	48.5	%	48.5	%	44.9	%	47.3	%	43.5	%	45.0	%	44.5	%	47.2	%	45.2	%	43.0	%	42.8	%	43.1	%
R&D	446		463		457		1,366		473		507		514		514		2,008		523		543		2,046
% of revenue	13.9	%	12.8	%	14.0	%	13.5	%	14.8	%	14.2	%	15.7	%	13.4	%	14.5	%	16.5	%	14.2	%	15.7	%
PURCHASED IN PROCESS R&D	0		1		24		25		0		0		0		0		0		0		0		60
% of revenue	0.0	%	0.0	%	0.7	%	0.2	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.5	%
SG&A	939		995		989		2,923		958		978		957		958		3,851		1,020		1,135		4,039
% of revenue	29.2	%	27.5	%	30.3	%	28.9	%	30.0	%	27.4	%	29.2	%	25.0	%	27.8	%	32.1	%	29.6	%	30.9	%
RESTRUCTURING CHARGES	113		32		14		159		21		26		35		15		97		36		226		284
% of revenue	3.5	%	0.9	%	0.4	%	1.6	%	0.7	%	0.7	%	1.1	%	0.4	%	0.7	%	1.1	%	5.9	%	2.2	%
IMPAIRMENT EXPENSE	0		0		0		0		0		0		0		0		0		0		70		70
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	1.8	%	0.5	%
TOTAL OPERATING EXPENSES	1,498		1,491		1,484		4,473		1,452		1,511		1,506		1,487		5,956		1,579		1,974		6,499
% of revenue	46.5	%	41.2	%	45.4	%	44.3	%	45.5	%	42.4	%	45.9	%	38.8	%	42.9	%	49.7	%	51.6	%	49.7	%
OPERATING INCOME (LOSS)	63		262		(16	)	309		(64	)	93		(45	)	325		309		(212	)	(335	)	(870	)
Operating margin	2.0	%	7.2	%	-0.5	%	3.1	%	-2.0	%	2.6	%	-1.4	%	8.5	%	2.2	%	-6.7	%	-8.8	%	-6.7	%
Interest and other income, net	58		53		34		145		42		63		50		59		214		26		19		114
Gain (loss) on equity investments, net	22		0		0		22		0		0		5		1		6		4		(4	)	27
Settlement income	0		0		0		0		0		0		54		0		54		0		54		54
PRETAX INCOME (LOSS)	143		315		18		476		(22	)	156		64		385		583		(182	)	(266	)	(675	)
Pretax income (loss) margin	4.4	%	8.7	%	0.6	%	4.7	%	-0.7	%	4.4	%	1.9	%	10.0	%	4.2	%	-5.7	%	-6.9	%	-5.2	%
INCOME TAX PROVISION (BENEFIT)	54		55		52		161		34		23		(3	)	56		110		35		35		189
NET INCOME (LOSS) (Reported)	89		260		(34	)	315		(56	)	133		67		329		473		(217	)	(301	)	(864	)
Growth vs. prior year (%)	258.9	%	95.5	%	-150.7	%	118.8	%	54.5	%	159.6	%	130.9	%	209.3	%	154.7	%	-675.0	%	-702.0	%	-433.3	%
Growth vs. prior quarter (%)	-72.9	%	192.1	%	-113.1	%			81.4	%	337.5	%	-49.6	%	391.0	%			2.7	%	-38.7	%
Net income (loss) margin	2.8	%	7.2	%	-1.0	%	3.1	%	-1.8	%	3.7	%	2.0	%	8.6	%	3.4	%	-6.8	%	-7.9	%	-6.6	%
EPS (Diluted) (Reported)(1)	0.10		0.31		(0.04	)	0.38		(0.06	)	0.15		0.07		0.36		0.52		(0.25	)	(0.35	)	(1.01	)
Growth vs. prior year (%)	266.7	%	106.7	%	-157.1	%	137.5	%	57.1	%	157.7	%	128.0	%	202.9	%	151.5	%	-733.3	%	-683.3	%	-431.6	%
Growth vs. prior quarter (%)	-72.2	%	210.0	%	-112.9	%			82.9	%	350.0	%	-53.3	%	414.3	%			3.8	%	-40.0	%
SHARES (CSE)(Basic)(1)	866		806		785		821		874		881		887		889		883		861		869		859
SHARES (CSE)(Diluted)(1)	884		826		785		837		874		907		915		908		902		861		869		859
OUTSTANDING SHARES(1)	824		792		781		781		878		885		889		884		884		868		876		876

(1) Basic, diluted and outstanding shares have been retroactively restated to reflect the one-for-four reverse stock split effective November 12, 2007. Accordingly, basic and diluted EPS has also been retroactively restated to reflect the reverse stock split.

	FY 2008						FY 2007												FY 2006
(in millions)	Q1		Q2		Q3		FY08		Q1		Q2		Q3		Q4		FY07		Q3		Q4		FY06
REVENUE BY GEOGRAPHY(3)
UNITED STATES ($M)	1,303		1,302		1,159		3,764		1,361		1,415		1,283		1,582		5,641		1,357		1,610		5,535
Growth vs. prior year (%)	-4.3	%	-8.0	%	-9.7	%	-7.3	%	16.5	%	1.1	%	-5.5	%	-1.7	%	1.9	%	38.2	%	37.0	%	26.0	%
Growth vs. prior quarter (%)	-17.6	%	-0.1	%	-11.0	%			-15.5	%	4.0	%	-9.3	%	23.3	%			-3.1	%	18.6	%
INTERNATIONAL AMERICAS ($M)	204		286		225		715		197		230		195		241		863		185		242		755
Growth vs. prior year (%)	3.6	%	24.3	%	15.4	%	15.0	%	42.8	%	21.1	%	5.4	%	-0.4	%	14.3	%	28.5	%	41.5	%	28.0	%
Growth vs. prior quarter (%)	-15.4	%	40.2	%	-21.3	%			-18.6	%	16.8	%	-15.2	%	23.6	%			-2.6	%	30.8	%
EMEA ($M)	1,161		1,406		1,264		3,831		1,109		1,311		1,212		1,367		4,999		1,115		1,341		4,646
Growth vs. prior year (%)	4.7	%	7.2	%	4.3	%	5.5	%	14.8	%	7.1	%	8.7	%	1.9	%	7.6	%	10.5	%	18.4	%	11.9	%
Growth vs. prior quarter (%)	-15.1	%	21.1	%	-10.1	%			-17.3	%	18.2	%	-7.6	%	12.8	%			-8.9	%	20.3	%
APAC ($M)	551		621		618		1,790		522		610		593		645		2,370		520		635		2,132
Growth vs. prior year (%)	5.6	%	1.8	%	4.2	%	3.8	%	15.0	%	16.6	%	14.0	%	1.6	%	11.2	%	5.7	%	28.3	%	10.1	%
Growth vs. prior quarter (%)	-14.6	%	12.7	%	-0.5	%			-17.8	%	16.9	%	-2.8	%	8.8	%			-0.6	%	22.1	%
% of Total Revenue
UNITED STATES (%)	40.5	%	36.0	%	35.5	%	37.3	%	42.7	%	39.7	%	39.1	%	41.3	%	40.7	%	42.7	%	42.1	%	42.4	%
INTERNATIONAL AMERICAS (%)	6.3	%	7.9	%	6.9	%	7.1	%	6.2	%	6.4	%	5.9	%	6.3	%	6.2	%	5.8	%	6.3	%	5.8	%
EMEA (%)	36.1	%	38.9	%	38.7	%	37.9	%	34.7	%	36.8	%	36.9	%	35.6	%	36.0	%	35.1	%	35.0	%	35.5	%
APAC (%)	17.1	%	17.2	%	18.9	%	17.7	%	16.4	%	17.1	%	18.1	%	16.8	%	17.1	%	16.4	%	16.6	%	16.3	%
PRODUCTS AND SERVICES REVENUE
COMPUTER SYSTEMS PRODUCTS ($M)	1,475		1,594		1,473		4,542		1,468		1,634		1,500		1,853		6,455		1,474		1,811		5,997
Growth vs. prior year (%)	0.5	%	-2.4	%	-1.8	%	-1.3	%	15.2	%	13.6	%	1.8	%	2.3	%	7.6	%	6.0	%	14.9	%	2.9	%
Growth vs. prior quarter (%)	-20.4	%	8.1	%	-7.6	%			-18.9	%	11.3	%	-8.2	%	23.5	%			2.5	%	22.9	%
STORAGE PRODUCTS ($M)	505		655		530		1,690		491		626		560		639		2,316		561		713		2,374
Growth vs. prior year (%)	2.9	%	4.6	%	-5.4	%	0.8	%	14.2	%	-6.6	%	-0.2	%	-10.4	%	-2.4	%	92.1	%	103.1	%	82.6	%
Growth vs. prior quarter (%)	-21.0	%	29.7	%	-19.1	%			-31.1	%	27.5	%	-10.5	%	14.1	%			-16.3	%	27.1	%
SUPPORT SERVICES ($M)	979		1,041		961		2,981		987		1,001		950		1,024		3,962		904		986		3,678
Growth vs. prior year (%)	-0.8	%	4.0	%	1.2	%	1.5	%	18.2	%	5.0	%	5.1	%	3.9	%	7.7	%	23.2	%	26.7	%	21.3	%
Growth vs. prior quarter (%)	-4.4	%	6.3	%	-7.7	%			0.1	%	1.4	%	-5.1	%	7.8	%			-5.1	%	9.1	%
PROFESSIONAL SERVICES & EDUCATIONAL SERVICES ($M)	260		325		302		887		243		305		273		319		1,140		238		318		1,019
Growth vs. prior year (%)	7.0	%	6.6	%	10.6	%	8.0	%	29.9	%	10.5	%	14.7	%	0.3	%	11.9	%	13.3	%	18.2	%	11.6	%
Growth vs. prior quarter (%)	-18.5	%	25.0	%	-7.1	%			-23.6	%	25.5	%	-10.5	%	16.8	%			-13.8	%	33.6	%
NET BOOKINGS ($M) (2)	3,149		3,868		3,180		10,197		3,036		3,603		3,238		3,909		13,786		2,680		3,376		11,487
Growth vs. prior year (%)	3.7	%	7.4	%	-1.8	%	3.2	%	25.8	%	19.4	%	20.8	%	15.8	%	20.0	%	5.7	%	9.7	%	4.0	%
Growth vs. prior quarter (%)	-19.4	%	22.8	%	-17.8	%			-10.1	%	18.7	%	-10.1	%	20.7	%			-11.2	%	26.0	%
BOOK TO BILL RATIO	0.98		1.07		0.97				0.95		1.01		0.99		1.02				0.99		1.04
PRODUCT BACKLOG ($M) (1), (2)	980		1,233		1,149				994		1,021		975		1,051				980		1,099
SERVICES BACKLOG ($M)	951		772		754				875		729		820		624				608		752
TOTAL BACKLOG ($M)	1,931		2,005		1,903				1,869		1,750		1,795		1,675				1,588		1,851
DEFERRED REVENUES
PRODUCTS DEFERRED REVENUES ($M)	564		793		740				486		538		577		603				502		602
Growth vs. prior year (%)	16.0	%	47.4	%	28.2	%			11.0	%	7.6	%	14.9	%	0.2	%			23.3	%	11.7	%
Growth vs. prior quarter (%)	-6.5	%	40.6	%	-6.7	%			-19.3	%	10.7	%	7.2	%	4.5	%			0.4	%	19.9	%
SERVICES DEFERRED REVENUES ($M)	1,977		1,896		1,866				1,746		1,630		1,881		2,103				1,629		1,873
Growth vs. prior year (%)	13.2	%	16.3	%	-0.8	%			9.4	%	9.3	%	15.5	%	12.3	%			7.8	%	13.3	%
Growth vs. prior quarter (%)	-6.0	%	-4.1	%	-1.6	%			-6.8	%	-6.6	%	15.4	%	11.8	%			9.3	%	15.0	%
TOTAL DEFERRED REVENUES ($M)	2,541		2,689		2,606				2,232		2,168		2,458		2,706				2,131		2,475
Growth vs. prior year (%)	13.8	%	24.0	%	6.0	%			9.7	%	8.9	%	15.3	%	9.3	%			11.1	%	12.9	%
Growth vs. prior quarter (%)	-6.1	%	5.8	%	-3.1	%			-9.8	%	-2.9	%	13.4	%	10.1	%			7.0	%	16.1	%

(1) Our product backlog includes orders for which customer-requested delivery is scheduled within six months and orders that have been specified by the customers for which products have been shipped but revenue has been deferred.

(2) The numbers presented prior to Q1 fiscal 2007 did not contain StorageTek information and should not be viewed as comparable.

(3) Geographic revenue reported for FY06, Q1FY07 and Q2FY07 has been adjusted to reflect a correction in intercompany revenue to properly report country of origin.

BALANCE SHEETS(2) (3) (4)	FY 2008								FY 2007										FY 2006
(in millions)	Q1		Q2		Q3				Q1		Q2		Q3		Q4				Q3		Q4
CASH & ST INVESTMENTS	3,819		3,433		3,027				3,971		3,456		4,114		4,582				2,872		4,065
ACCOUNTS RECEIVABLE, NET	2,203		2,789		2,405				2,036		2,331		2,458		2,964				2,301		2,702
RAW MATERIALS	130		152		159				119		126		106		125				49		68
WORK IN PROCESS	110		96		99				92		106		101		95				125		97
FINISHED GOODS	331		383		477				373		373		360		304				400		375
TOTAL INVENTORIES	571		631		735				584		605		567		524				574		540
OTHER CURRENT ASSETS	1,297		1,306		1,329				1,153		1,158		1,221		1,258				1,146		1,153
TOTAL CURRENT ASSETS	7,890		8,159		7,496				7,744		7,550		8,360		9,328				6,893		8,460
PP&E, NET	1,556		1,569		1,584				1,583		1,579		1,586		1,533				1,880		1,812
GOODWILL	2,466		2,496		3,288				2,566		2,571		2,571		2,514				2,487		2,610
LT MARKETABLE DEBT SECURITIES	1,374		1,244		774				700		1,381		1,372		1,360				1,557		783
OTHER NON-CURRENT ASSETS	1,072		1,011		1,120				1,301		1,221		1,161		1,103				1,553		1,417
TOTAL ASSETS	14,358		14,479		14,262				13,894		14,302		15,050		15,838				14,370		15,082
ACCOUNTS PAYABLE	1,140		1,312		1,306				1,263		1,296		1,187		1,381				1,315		1,446
ACCRUED LIABILITIES & OTHER	1,943		2,074		2,056				2,020		2,092		1,979		2,023				2,448		2,750
DEFERRED REVENUES	1,911		2,049		1,979				1,674		1,601		1,869		2,047				1,659		1,969
TOTAL CURRENT LIABILITIES	4,994		5,435		5,341				4,957		4,989		5,035		5,451				5,422		6,165
LT DEBT	1,270		1,273		1,275				582		579		1,270		1,264				585		575
LT DEFERRED REVENUES	630		640		627				558		567		589		659				472		506
OTHER NON-CURRENT OBLIGATIONS	1,271		1,259		1,229				1,388		1,396		1,264		1,285				1,504		1,492
STOCKHOLDERS’ EQUITY	6,193		5,872		5,790				6,409		6,771		6,892		7,179				6,387		6,344
TOTAL LIABILITIES & SE	14,358		14,479		14,262				13,894		14,302		15,050		15,838				14,370		15,082
CASH FLOW(2)	Q1		Q2		Q3		FY08		Q1		Q2		Q3		Q4		FY07		Q3		Q4		FY06
OPERATING ACTIVITIES	574		336		329		1,239		123		129		142		564		958		184		390		567
INVESTING ACTIVITIES	(211	)	(199	)	113		(297	)	143		(1,013	)	(110	)	(97	)	(1,077	)	230		1,366		652
FINANCING ACTIVITIES	(1,231	)	(675	)	(293	)	(2,199	)	(473	)	135		647		(139	)	170		34		172		299
KEY METRICS	Q1		Q2		Q3				Q1		Q2		Q3		Q4				Q3		Q4
DAYS SALES OUTSTANDING (DSO)	62		69		66				57		59		67		70				65		64
DAYS OF SUPPLY ON HAND (DOS)	31		30		37				29		28		28		23				29		22
DAYS PAYABLES OUTSTANDING (DPO)	(62	)	(63	)	(65	)			(63	)	(59	)	(59	)	(61	)			(65	)	(59	)
CASH CONVERSION CYCLE (CCC)	31		36		38				23		28		36		32				29		27
L-T DEBT/EQUITY (%)	20.5	%	21.7	%	22.0	%			9.1	%	8.6	%	18.4	%	17.6	%			9.2	%	9.1	%
INVENTORY TURNS-PRODUCT ONLY (hist.)	8.2		7.5		7.1				8.8		8.6		8.7		9.0				9.3		9.9
ROE (12 mo. avg.)(%)	9.1	%	11.4	%	10.3	%			-12.4	%	-6.8	%	-2.4	%	6.9	%			-7.8	%	-13.4	%
ROA (12 mo. avg.)(%)	4.2	%	5.0	%	4.4	%			-5.5	%	-3.1	%	-1.1	%	3.2	%			-3.6	%	-5.9	%
ROIC (12 mo. avg.)(%)	8.1	%	11.8	%	10.7	%			-24.9	%	-16.9	%	-11.6	%	5.2	%			-19.2	%	-26.2	%
DEPREC. & AMORT. ($M)	193		196		189				204		214		209		203				228		224
CAPITAL INVESTMENTS, NET ($M)(1)	127		108		62				(160	)	81		152		(36	)			63		122
NUMBER OF EMPLOYEES	33,904		33,350		34,440				36,250		34,667		34,494		34,219				38,312		38,061
REVENUE PER EMPLOYEE (12 mo. Avg.) ($K)	405		410		410				357		374		387		397				333		340

(1) Included in the Q1 fiscal 2007 capital investments, net, are the cash proceeds of approximately $214 million from the sale of our Newark, California facility.

(2) Certain numbers presented in the Q1-Q3 fiscal 2007 and all periods in Fiscal 2006 balance sheets and statements of cash flow have been reclassified from other non-current assets to other current assets and investing activities to operating activities, respectively, to reflect a change in associated classification.

(3) Certain numbers presented in the fiscal 2007 balance sheets have been reclassified from accounts payable to accrued liabilities and other.

(4) Certain numbers presented in the fiscal 2007, fiscal 2006 and first quarter balance sheets have been reclassified from deferred revenues to accrued liabilities and other.

SUN MICROSYSTEMS, INC.

ADJUSTED EBITDA – NON-GAAP(1)	FY2008								FY2007										FY2006
(in millions)	Q1		Q2		Q3		FY08		Q1		Q2		Q3		Q4		FY07		Q3		Q4		FY06
Net income (loss), as reported	89		260		(34	)	315		(56	)	133		67		329		473		(217	)	(301	)	(864	)
Interest (income) expense, net	(58	)	(53	)	(34	)	(145	)	(42	)	(63	)	(50	)	(59	)	(214	)	(26	)	(19	)	(114	)
Taxes	54		55		52		161		34		23		(3	)	56		110		35		35		189
Amortization of acquisition related intangibles	74		74		77		225		81		80		78		74		313		89		89		331
Depreciation and amortization	119		122		112		353		123		134		131		129		517		139		135		575
EBITDA	278		458		173		909		140		307		223		529		1,199		20		(61	)	117
Adjustments:
Stock based compensation	48		52		57		157		58		58		50		48		214		57		63		225
(Gain) loss on equity investments, net	(22	)	—		—		(22	)	—		—		(5	)	(1	)	(6	)	(4	)	4		(27	)
Settlement (income) loss	—		—		—		—		—		—		(54	)	—		(54	)	—		(54	)	(54	)
Adjusted EBITDA	304		510		230		1,044		198		365		214		576		1,353		73		(48	)	261
Adjusted EBITDA % of revenue	9.4	%	14.1	%	7.0	%	10.3	%	6.2	%	10.2	%	6.5	%	15.0	%	9.8	%	2.3	%	-1.3	%	2.0	%
Growth vs. prior year (%)	53.5	%	39.7	%	7.5	%	34.4	%	94.1	%	172.4	%	193.2	%	1300.0	%	418.4	%	49.0	%	-157.8	%	-22.1	%
Growth vs. prior quarter (%)	-47.2	%	67.8	%	-54.9	%			512.5	%	84.3	%	-41.4	%	169.2	%			-45.5	%	-165.8	%

(1) Non-GAAP Financial Measures

This operations analysis and the related conference call contain non-GAAP financial measures. Sun utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating decisions and for forecasting and planning future periods. These non-GAAP financial measures include EBITDA and Adjusted EBITDA. EBITDA is defined as earnings before net interest, taxes, amortization of acquisition related intangibles and other depreciation and amortization. We further exclude stock-based compensation, gain on equity investments, net, and settlement income to determine Adjusted EBITDA. These measures are used by some investors when assessing the performance of Sun. Sun believes the assessment of its operations excluding these items is relevant to the assessment of internal operations and comparisons to industry performance.

Reasons for Presenting Non-GAAP Measures. Sun believes these non-GAAP measures help indicate Sun’s baseline performance before gains, losses or charges that are considered by Sun to be outside on-going operating results. Accordingly, Sun uses these non-GAAP measures to gain a better understanding of Sun’s comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Sun believes these non-GAAP measures, when read in conjunction with Sun’s GAAP financials, provide useful information to investors by offering:

• the ability to make more meaningful period-to-period comparisons of Sun’s on-going operating results;

• the ability to better identify trends in Sun’s underlying business and perform related trend analysis;

• a better understanding of how management plans and measures Sun’s underlying business; and

• an easier way to compare Sun’s most recent results of operations against investor and analyst financial models.

Items Excluded From Non-GAAP Measures. As described above, the calculation of Adjusted EBITDA (and, in some cases, EBITDA) excludes items in the following general categories, which are discussed in more detail below:

Stock-based Compensation. Stock-based compensation is a key incentive offered to our employees, and Sun believes such compensation contributed to the revenues earned during the periods presented and also believes it will contribute to the generation of future period revenues. Nevertheless, Sun believes that the exclusion of non-cash stock-based compensation allows management and investors to compare Sun’s recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use to account for stock-based compensation under FAS 123R, Sun’s management believes that providing a non-GAAP financial measure that excludes stock-based compensation allows investors to make meaningful comparisons between Sun’s recurring core business operating results and those of other companies, as well as providing Sun’s management with an important tool for financial and operational decision making and for evaluating Sun’s own recurring core business operating results over different periods of time. In addition, Sun prepares and maintains its budgets and forecasts for future periods excluding stock-based compensation. Stock-based compensation expenses will recur in future periods.

Amortization of Acquisition Related Intangibles. Sun excludes amortization of intangible assets resulting from acquisitions to allow more accurate comparisons of its financial results to its historical operations, forward-looking guidance and the financial results of peer companies. In recent years, Sun has completed the acquisition of StorageTek and the acquisition of other assets and technologies, which resulted in operating expenses that would not otherwise have been incurred. Sun believes that providing a non-GAAP financial measure that excludes the amortization of intangible assets provides the users of its financial statements an enhanced understanding of historic and future financial results and facilitates comparisons to peer companies. Additionally, had Sun internally developed these intangible assets, the amortization of intangible assets would have been expensed historically, and Sun believes the assessment of its operations excluding these costs is relevant to the assessment of internal operations and comparisons to industry performance. Amortization of acquisition related intangibles will recur in future periods.

Net Interest Expense, Taxes, Other Depreciation and Amortization, Net Gain (Loss) on Equity Investments and Settlement Income. Sun excludes these items because it believes that they are not directly related to the underlying performance of Sun’s core business operations. Each of these items are expected to recur in future periods.

Limitations. Each of the non-GAAP financial measures described above, and used in this operations analysis and the related conference call, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in Sun’s financial results for the foreseeable future. In addition, other companies, including other companies in Sun’s industry, may calculate non-GAAP financial measures differently than Sun does, limiting their usefulness as a comparative tool. Sun compensates for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, Sun evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial information.