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): November 6, 2009

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 November 6, 2009, Sun Microsystems, Inc. (“Sun”) posted on its website financial results for the fiscal quarter ended September 27, 2009. Sun’s Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Calculation of Non-GAAP Net Income (Loss) and Operations Analysis—Consolidated are attached hereto as Exhibit 99.1. Sun’s Q110 Results – Financial Slides are attached hereto as Exhibit 99.2.

The materials 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. The non-GAAP financial measures Sun uses include non-GAAP net income and diluted non-GAAP net income per share. Non-GAAP net income is defined as net income excluding purchased in-process research and development, amortization of acquisition-related intangibles, accretion of discounts on convertible debt, stock-based compensation, restructuring charges, impairment of goodwill and acquisition-related intangible assets, gain or loss on equity investments, net, settlement income and the tax effect of these non-GAAP adjustments. 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 illustrate Sun’s baseline performance before gains, losses or charges that are considered by Sun to be outside of 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 non-GAAP net income excludes items in the following categories:

Purchased In-Process Research and Development and Amortization of Acquisition-Related Intangibles. Sun excludes purchased in-process research and development and 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 acquisitions of MySQL and 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 purchased in-process research and development and the amortization of acquisition related 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, with respect to the amortization of acquisition-related intangible assets, had Sun internally developed these intangible assets, the amortization of such 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. Although purchased in-process research and development expenses are not recurring with respect to past acquisitions, Sun will incur these expenses in connection with any future acquisitions.

Stock-Based Compensation. Stock-based compensation is a key incentive offered to Sun’s 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.

Accretion of Discounts on Convertible Debt, Restructuring Charges, Impairment of Goodwill and Acquisition-Related Intangible Assets, Gain or Loss on Equity Investments, Net, Settlement Income and Tax Effect of Non-GAAP Adjustments. Sun excludes these items because it believes that they are not directly related to the underlying performance of Sun’s core business operations. Other than impairment of goodwill, 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 materials, 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 the 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 exhibits are filed herewith:

Exhibit Number	Description
99.1	Sun Microsystems, Inc. Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Calculation of Non-GAAP Net Income (Loss) and Operations Analysis – Consolidated.
99.2	Sun Microsystems Q110 Results – Financial Slides.

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: November 6, 2009

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	Sun Microsystems, Inc. Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Calculation of Non-GAAP Net Income (Loss) and Operations Analysis – Consolidated.
99.2	Sun Microsystems Q110 Results – Financial Slides.

EX-99.1

Exhibit 99.1

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

	Three Months Ended
	September 27, 2009			September 28, 2008 (1)
Net revenues:
Products	$	1,187		$	1,764
Services		1,056			1,226
Total net revenues		2,243			2,990
Cost of sales:
Cost of sales-products		695			1,143
Cost of sales-services		575			646
Total cost of sales		1,270			1,789
Gross margin		973			1,201
Operating expenses:
Research and development		354			423
Selling, general and administrative		668			920
Restructuring charges		45			63
Impairment of goodwill and acquisition-related intangible assets		6			1,445
Total operating expenses		1,073			2,851
Operating loss		(100	)		(1,650	)
Gain (loss) on equity investments, net		(2	)		8
Interest and other expense, net		(11	)		(18	)
Loss before income taxes		(113	)		(1,660	)
Provision for income taxes		7			21
Net loss	$	(120	)	$	(1,681	)
Loss per common share-basic	$	(0.16	)	$	(2.24	)
Loss per common share-diluted	$	(0.16	)	$	(2.24	)
Shares used in the calculation of loss per common share-basic		753			749
Shares used in the calculation of loss per common share-diluted		753			749

(1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

	September 27, 2009			June 30, 2009 (1),(2)
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,757		$	1,876
Short-term marketable debt securities		624			981
Accounts receivable, net		1,743			2,258
Inventories		559			566
Deferred and prepaid tax assets		198			188
Prepaid expenses and other current assets, net		948			995
Total current assets		5,829			6,864
Property, plant and equipment, net		1,556			1,616
Long-term marketable debt securities		171			204
Goodwill		1,745			1,743
Other acquisition-related intangible assets, net		211			269
Other non-current assets, net		554			536
	$	10,066		$	11,232
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	825		$	1,027
Accrued payroll-related liabilities		538			573
Accrued liabilities and other		850			983
Deferred revenues		2,152			2,341
Warranty reserve		125			143
Current portion of long-term debt		—			554
Total current liabilities		4,490			5,621
Long-term debt		589			581
Long-term deferred revenues		643			635
Other non-current obligations		960			976
Stockholders’ equity:
Preferred stock		—			—
Common stock and additional paid-in-capital		7,787			7,746
Treasury stock, at cost		(2,527	)		(2,569	)
Accumulated deficit		(2,273	)		(2,105	)
Accumulated other comprehensive income		397			347
Total stockholders’ equity		3,384			3,419
	$	10,066		$	11,232

(1) Derived from audited financial statements.

(2) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

	Three Months Ended
	September 27, 2009			September 28, 2008 (1)
Cash flows from operating activities:
Net loss	$	(120	)	$	(1,681	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		104			114
Amortization of acquisition-related intangible assets		52			80
Accretion of discounts on convertible debt		7			7
Stock-based compensation expense		41			49
Purchased in-process research and development
Impairment of goodwill and acquisition-related intangible assets		6			1,445
Loss on investments and other, net		1			14
Changes in operating assets and liabilities:
Accounts receivable, net		516			565
Inventories		7			16
Prepaid and other assets, net		4			99
Accounts payable		(201	)		(280	)
Other liabilities		(379	)		(280	)
Net cash provided by operating activities		38			148
Cash flows from investing activities:
Decrease (increase) in restricted cash		3			(8	)
Purchases of marketable debt securities		(111	)		(262	)
Proceeds from sales of marketable debt securities		95			95
Proceeds from maturities of marketable debt securities		414			75
Proceeds from sales of equity investments, net		—			7
Purchases of property, plant and equipment, net		(22	)		(165	)
Net cash provided (used) in investing activities		379			(258	)
Cash flows from financing activities:
Purchase of common stock under stock repurchase plans		—			(130	)
Proceeds from issuance of options and ESPP purchases, net		1			3
Principal payments on borrowings and other obligations		(554	)		(5	)
Net cash used in financing activities		(553	)		(132	)
Effect of changes in exchange rates on cash and cash equivalents		17			—
Net decrease in cash and cash equivalents		(119	)		(242	)
Cash and cash equivalents, beginning of period		1,876			2,272
Cash and cash equivalents, end of period	$	1,757		$	2,030

(1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

SUN MICROSYSTEMS, INC.

CALCULATION OF NON-GAAP NET INCOME (LOSS)

(unaudited)

(in millions, except per share amounts)

	Three Months Ended
	September 27, 2009			September 28, 2008 (1)
Calculation of non-GAAP income (loss):
GAAP loss	$	(120	)	$	(1,681	)
Amortization of acquisition-related intangibles assets		52			80
Accretion of discounts on convertible debt		7			7
Stock-based compensation		41			49
Restructuring charges		45			63
Impairment of goodwill and acquisition-related intangible assets		6			1,445
(Gain) loss on equity investments, net		2			(8	)
Tax effect of non-GAAP adjustments		(18	)		(17	)
Non-GAAP income (loss)	$	15		$	(62	)
Diluted non-GAAP income (loss) per share	$	0.02		$	(0.08	)
Shares used in the calculation of non-GAAP net income (loss) per common share – diluted		760			749

(1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

STATEMENTS OF OPERATIONS (1)

	FY 2010				FY 2009 (1)										FY 2008 (1)
(in millions except per share amounts)	Q1		FY10		Q1		Q2		Q3		Q4		FY09		Q1		Q2		Q3		Q4		FY08
NET REVENUES
Products	1,187		1,187		1,764		1,939		1,519		1,482		6,704		1,980		2,249		2,003		2,386		8,618
Services	1,056		1,056		1,226		1,281		1,095		1,143		4,745		1,239		1,366		1,263		1,394		5,262
TOTAL	2,243		2,243		2,990		3,220		2,614		2,625		11,449		3,219		3,615		3,266		3,780		13,880
Growth vs. prior year (%)	-25.0	%	-25.0	%	-7.1	%	-10.9	%	-20.0	%	-30.6	%	-17.5	%	0.9	%	1.4	%	-0.5	%	-1.4	%	0.1	%
Growth vs. prior quarter (%)	-14.6	%			-20.9	%	7.7	%	-18.8	%	0.4	%			-16.1	%	12.3	%	-9.7	%	15.7	%
COST OF SALES
Products	695		695		1,143		1,180		877		924		4,124		1,029		1,161		1,106		1,372		4,668
Services	575		575		646		690		621		637		2,594		629		701		692		735		2,757
TOTAL	1,270		1,270		1,789		1,870		1,498		1,561		6,718		1,658		1,862		1,798		2,107		7,425
% of revenue	56.6	%	56.6	%	59.8	%	58.1	%	57.3	%	59.5	%	58.7	%	51.5	%	51.5	%	55.1	%	55.7	%	53.5	%
GROSS MARGIN
Products	492		492		621		759		642		558		2,580		951		1,088		897		1,014		3,950
% of product revenue	41.4	%	41.4	%	35.2	%	39.1	%	42.3	%	37.7	%	38.5	%	48.0	%	48.4	%	44.8	%	42.5	%	45.8	%
Services gross margin	481		481		580		591		474		506		2,151		610		665		571		659		2,505
% of service revenue	45.5	%	45.5	%	47.3	%	46.1	%	43.3	%	44.3	%	45.3	%	49.2	%	48.7	%	45.2	%	47.3	%	47.6	%
TOTAL GROSS MARGIN	973		973		1,201		1,350		1,116		1,064		4,731		1,561		1,753		1,468		1,673		6,455
% of revenue	43.4	%	43.4	%	40.2	%	41.9	%	42.7	%	40.5	%	41.3	%	48.5	%	48.5	%	44.9	%	44.3	%	46.5	%
R&D	354		354		423		411		393		421		1,648		446		463		457		468		1,834
% of revenue	15.8	%	15.8	%	14.1	%	12.8	%	15.0	%	16.0	%	14.4	%	13.9	%	12.8	%	14.0	%	12.4	%	13.2	%
PURCHASED IN PROCESS R&D	—		—		—		—		3		—		3		—		1		24		6		31
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	0.1	%	0.0	%	0.0	%	0.0	%	0.0	%	0.7	%	0.2	%	0.2	%
SG&A	668		668		920		916		843		782		3,461		939		995		989		1,032		3,955
% of revenue	29.8	%	29.8	%	30.8	%	28.4	%	32.2	%	29.8	%	30.2	%	29.2	%	27.5	%	30.3	%	27.3	%	28.5	%
RESTRUCTURING CHARGES	45		45		63		222		46		64		395		113		32		14		104		263
% of revenue	2.0	%	2.0	%	2.1	%	6.9	%	1.8	%	2.4	%	3.5	%	3.5	%	0.9	%	0.4	%	2.8	%	1.9	%
IMPAIRMENT OF GOODWILL AND ACQUISITION-RELATED INTANGIBLE ASSETS	6		6		1,445		—		—		15		1,460		—		—		—		—		—
% of revenue	0.3	%	0.3	%	48.3	%	0.0	%	0.0	%	0.6	%	12.8	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
TOTAL OPERATING EXPENSES	1,073		1,073		2,851		1,549		1,285		1,282		6,967		1,498		1,491		1,484		1,610		6,083
% of revenue	47.8	%	47.8	%	95.4	%	48.1	%	49.2	%	48.8	%	60.9	%	46.5	%	41.2	%	45.4	%	42.6	%	43.8	%
OPERATING INCOME (LOSS)	(100	)	(100	)	(1,650	)	(199	)	(169	)	(218	)	(2,236	)	63		262		(16	)	63		372
Operating margin	-4.5	%	-4.5	%	-55.2	%	-6.2	%	-6.5	%	-8.3	%	-19.5	%	2.0	%	7.2	%	-0.5	%	1.7	%	2.7	%
Interest and other income, net	(11	)	(11	)	(18	)	3		(9	)	(6	)	(30	)	52		46		27		9		134
Gain (loss) on equity investments, net	(2	)	(2	)	8		(3	)	3		—		8		22		—		—		10		32
Settlement income	—		0		—		—		—		47		47		—		—		—		45		45
PRETAX INCOME (LOSS)	(113	)	(113	)	(1,660	)	(199	)	(175	)	(177	)	(2,211	)	137		308		11		127		583
Pretax income (loss) margin	-5.0	%	-5.0	%	-55.5	%	-6.2	%	-6.7	%	-6.7	%	-19.3	%	4.3	%	8.5	%	0.3	%	3.4	%	4.2	%
INCOME TAX PROVISION (BENEFIT)	7		7		21		19		33		(23	)	50		52		52		49		46		199
NET INCOME (LOSS) (Reported)	(120	)	(120	)	(1,681	)	(218	)	(208	)	(154	)	(2,261	)	85		256		(38	)	81		384
Growth vs. prior year (%)	92.9	%	-92.9	%	-2077.6	%	-185.2	%	-447.4	%	-290.1	%	-688.8	%	251.8	%	92.5	%	-156.7	%	-75.4	%	-18.8	%
Growth vs. prior quarter (%)	22.1	%			-2175.3	%	87.0	%	4.6	%	26.0	%			-74.2	%	201.2	%	-114.8	%	313.2	%
Net income (loss) margin	-5.3	%	-5.3	%	-56.2	%	-6.8	%	-8.0	%	-5.9	%	-19.7	%	2.6	%	7.1	%	-1.2	%	2.1	%	2.8	%
EPS (Diluted) (Reported)(1)	(0.16	)	(0.16	)	(2.24	)	(0.29	)	(0.28	)	(0.21	)	(3.03	)	0.10		0.31		(0.05	)	0.10		0.47
Growth vs. prior year (%)	92.9	%	-92.9	%	-2340.0	%	-193.5	%	-460.0	%	-310.0	%	-758.7	%	266.7	%	106.7	%	-171.4	%	-72.2	%	-9.6	%
Growth vs. prior quarter (%)	23.8	%			-2340.0	%	87.1	%	3.4	%	25.0	%			-72.2	%	210.0	%	-116.1	%	300.0	%
SHARES (CSE)(Basic)	753		753		749		743		745		749		747		866		806		785		772		809
SHARES (CSE)(Diluted)	753		753		749		743		745		749		747		884		826		785		776		822
OUTSTANDING SHARES	754		754		738		745		746		751		751		824		792		782		751		751

(1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

	FY 2010				FY 2009										FY 2008
(in millions)	Q1		FY10		Q1		Q2		Q3		Q4		FY09		Q1		Q2		Q3		Q4		FY08
REVENUE BY GEOGRAPHY(1)
NORTH AMERICA REGION ($M)	981		981		1,213		1,258		1,042		1,046		4,559		1,386		1,407		1,253		1,551		5,597
Growth vs. prior year (%)	-19.1	%	-19.1	%	-12.5	%	-10.6	%	-16.8	%	-32.6	%	-18.5	%	-3.5	%	-6.2	%	-7.3	%	-7.5	%	-6.2	%
Growth vs. prior quarter (%)	-6.2	%			-21.8	%	3.7	%	-17.2	%	0.4	%			-17.3	%	1.5	%	-10.9	%	23.8	%
EUROPE REGION ($M)	675		675		954		1,067		849		893		3,763		1,042		1,223		1,114		1,252		4,631
Growth vs. prior year (%)	-29.2	%	-29.2	%	-8.4	%	-12.8	%	-23.8	%	-28.7	%	-18.7	%	5.3	%	3.7	%	3.2	%	4.2	%	4.1	%
Growth vs. prior quarter (%)	-24.4	%			-23.8	%	11.8	%	-20.4	%	5.2	%			-13.2	%	17.4	%	-8.9	%	12.4	%
EMERGING MARKETS REGION ($M)	311		311		463		558		407		366		1,794		415		563		463		528		1,969
Growth vs. prior year (%)	-32.8	%	-32.8	%	11.6	%	-0.9	%	-12.1	%	-30.7	%	-8.9	%	11.6	%	26.8	%	10.8	%	6.5	%	13.8	%
Growth vs. prior quarter (%)	-15.0	%			-12.3	%	20.5	%	-27.1	%	-10.1	%			-16.3	%	35.7	%	-17.8	%	14.0	%
APAC REGION ($M)	276		276		360		337		316		320		1,333		376		422		436		449		1,683
Growth vs. prior year (%)	-23.3	%	-23.3	%	-4.3	%	-20.1	%	-27.5	%	-28.7	%	-20.8	%	-3.8	%	-4.7	%	0.5	%	-2.8	%	-2.7	%
Growth vs. prior quarter (%)	-13.8	%			-19.8	%	-6.4	%	-6.2	%	1.3	%			-18.6	%	12.2	%	3.3	%	3.0	%
% of Total Revenue
NORTH AMERICA REGION (%)	43.7	%	43.7	%	40.6	%	39.1	%	39.8	%	39.8	%	39.8	%	43.1	%	38.9	%	38.4	%	41.0	%	40.3	%
EUROPE REGION (%)	30.1	%	30.1	%	31.9	%	33.1	%	32.5	%	34.0	%	32.9	%	32.4	%	33.8	%	34.1	%	33.1	%	33.4	%
EMERGING MARKETS REGION (%)	13.9	%	13.9	%	15.5	%	17.3	%	15.6	%	13.9	%	15.7	%	12.9	%	15.6	%	14.2	%	14.0	%	14.2	%
APAC REGION (%)	12.3	%	12.3	%	12.0	%	10.5	%	12.1	%	12.3	%	11.6	%	11.6	%	11.7	%	13.3	%	11.9	%	12.1	%
PRODUCTS AND SERVICES REVENUE
SYSTEMS
SERVER PRODUCTS ($M)	862		862		1,257		1,369		1,094		1,099		4,819		1,475		1,594		1,473		1,722		6,264
Growth vs. prior year (%)	-31.4	%	-31.4	%	-14.8	%	-14.1	%	-25.7	%	-36.2	%	-23.1	%	0.5	%	-2.4	%	-1.8	%	-7.1	%	-3.0	%
Growth vs. prior quarter (%)	-21.6	%			-27.0	%	8.9	%	-20.1	%	0.5	%			-20.4	%	8.1	%	-7.6	%	16.9	%
STORAGE PRODUCTS ($M)	325		325		507		570		425		383		1,885		505		655		530		664		2,354
Growth vs. prior year (%)	-35.9	%	-35.9	%	0.4	%	-13.0	%	-19.8	%	-42.3	%	-19.9	%	2.9	%	4.6	%	-5.4	%	3.9	%	1.6	%
Growth vs. prior quarter (%)	-15.1	%			-23.6	%	12.4	%	-25.4	%	-9.9	%			-21.0	%	29.7	%	-19.1	%	25.3	%
SERVICES
SUPPORT SERVICES ($M)	852		852		963		946		853		886		3,648		979		1,041		961		1,042		4,023
Growth vs. prior year (%)	-11.5	%	-11.5	%	-1.6	%	-9.1	%	-11.2	%	-15.0	%	-9.3	%	-0.8	%	4.0	%	1.2	%	1.8	%	1.5	%
Growth vs. prior quarter (%)	-3.8	%			-7.6	%	-1.8	%	-9.8	%	3.9	%			-4.4	%	6.3	%	-7.7	%	8.4	%
PROFESSIONAL SERVICES & EDUCATIONAL SERVICES ($M)	204		204		263		335		242		257		1,097		260		325		302		352		1,239
Growth vs. prior year (%)	-22.4	%	-22.4	%	1.2	%	3.1	%	-19.9	%	-27.0	%	-11.5	%	7.0	%	6.6	%	10.6	%	10.3	%	8.7	%
Growth vs. prior quarter (%)	-20.6	%			-25.3	%	27.4	%	-27.8	%	6.2	%			-18.5	%	25.0	%	-7.1	%	16.6	%
NET BOOKINGS ($M)) (3)	2,303		2,303		2,981		3,259		2,619		2,599		11,458		3,149		3,872		3,186		3,783		13,990
Growth vs. prior year (%)	-22.7	%	-22.7	%	-5.3	%	-15.8	%	-17.8	%	-31.3	%	-18.1	%	3.7	%	7.5	%	-1.6	%	-3.2	%	1.5	%
Growth vs. prior quarter (%)	-11.4	%			-21.2	%	9.3	%	-19.6	%	-0.8	%			-19.4	%	23.0	%	-17.7	%	18.7	%
BOOK TO BILL RATIO ) (3)	1.00				1.00		1.01		1.00		0.99				0.98		1.07		0.98		1.00
PRODUCT BACKLOG ($M) (2) (3)	1,226				1,149		1,187		1,192		1,159				980		1,235		1,154		1,157
SERVICES BACKLOG ($M) (3)	610				773		598		645		626				951		772		753		779
TOTAL BACKLOG ($M)	1,836				1,922		1,785		1,837		1,785				1,931		2,007		1,907		1,936
DEFERRED REVENUES
PRODUCTS DEFERRED REVENUES ($M) (3)	996				868		898		930		987				564		793		745		897
Growth vs. prior year (%)	14.7	%			53.9	%	13.2	%	24.8	%	10.0	%			16.0	%	47.4	%	29.1	%	48.8	%
Growth vs. prior quarter (%)	0.9	%			-3.2	%	3.5	%	3.6	%	6.1	%			-6.5	%	40.6	%	-6.1	%	20.4	%
SERVICES DEFERRED REVENUES ($M) (3)	1,799				1,899		1,693		1,808		1,989				1,977		1,896		1,861		2,022
Growth vs. prior year (%)	-5.3	%			-3.9	%	-10.7	%	-2.8	%	-1.6	%			13.2	%	16.3	%	-1.1	%	-3.9	%
Growth vs. prior quarter (%)	-9.6	%			-6.1	%	-10.8	%	6.8	%	10.0	%			-6.0	%	-4.1	%	-1.8	%	8.7	%
TOTAL DEFERRED REVENUES ($M)	2,795				2,767		2,591		2,738		2,976				2,541		2,689		2,606		2,919
Growth vs. prior year (%)	1.0	%			8.9	%	-3.6	%	5.1	%	2.0	%			13.8	%	24.0	%	6.0	%	7.9	%
Growth vs. prior quarter (%)	-6.1	%			-5.2	%	-6.4	%	5.7	%	8.7	%			-6.1	%	5.8	%	-3.1	%	12.0	%

(1) Effective Q1FY09, we began utilizing revised geographic groupings. Revenue figures have been adjusted to reflect the change in the compilation of the countries that make up each of our geographic regions.

(2) 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.

(3) The bookings and products and services backlog and deferred revenue number presented in Q3 FY08, Q4 FY08 and Q1 FY09 have been adjusted to reflect a correction.

BALANCE SHEETS(1)

	FY 2010				FY 2009 (2)										FY 2008 (2)
(in millions)	Q1				Q1		Q2		Q3		Q4				Q1		Q2		Q3		Q4
CASH & ST INVESTMENTS	2,381				2,631		2,644		2,703		2,857				3,819		3,433		3,027		2,701
ACCOUNTS RECEIVABLE, NET	1,743				2,448		2,574		2,265		2,258				2,203		2,789		2,405		3,019
RAW MATERIALS	95				153		115		99		102				130		152		159		154
WORK IN PROCESS	52				94		67		61		52				110		96		99		90
FINISHED GOODS	412				415		410		401		412				331		383		477		436
TOTAL INVENTORIES	559				662		592		561		566				571		631		735		680
OTHER CURRENT ASSETS	1,146				1,356		1,298		1,221		1,183				1,297		1,306		1,329		1,434
TOTAL CURRENT ASSETS	5,829				7,097		7,108		6,750		6,864				7,890		8,159		7,496		7,834
PP&E, NET	1,556				1,662		1,645		1,670		1,616				1,556		1,569		1,584		1,611
GOODWILL	1,745				1,700		1,700		1,740		1,743				2,466		2,496		3,288		3,215
LT MARKETABLE DEBT SECURITIES	171				490		364		287		204				1,374		1,244		774		609
OTHER NON-CURRENT ASSETS, NET	765				961		867		815		805				1,072		1,011		1,120		1,071
TOTAL ASSETS	10,066				11,910		11,684		11,262		11,232				14,358		14,479		14,262		14,340
CURRENT PORTION OF LT DEBT	—				565		569		562		554				—		—		—		—
ACCOUNTS PAYABLE	825				1,110		1,290		1,049		1,027				1,140		1,312		1,306		1,387
ACCRUED LIABILITIES & OTHER	1,513				1,955		2,003		1,897		1,699				1,941		2,069		2,049		2,045
DEFERRED REVENUES	2,152				2,226		2,070		2,190		2,341				1,911		2,049		1,979		2,236
TOTAL CURRENT LIABILITIES	4,490				5,856		5,932		5,698		5,621				4,992		5,430		5,334		5,668
LT DEBT	589				559		566		574		581				1,108		1,118		1,126		1,123
LT DEFERRED REVENUES	643				541		521		548		635				630		640		627		683
OTHER NON-CURRENT OBLIGATIONS	960				1,055		1,014		970		976				1,271		1,259		1,229		1,136
STOCKHOLDERS’ EQUITY	3,384				3,899		3,651		3,472		3,419				6,357		6,032		5,946		5,730
TOTAL LIABILITIES & SE	10,066				11,910		11,684		11,262		11,232				14,358		14,479		14,262		14,340
CASH FLOW
	Q1		FY10		Q1		Q2		Q3		Q4		FY09		Q1		Q2		Q3		Q4		FY08
OPERATING ACTIVITIES	38		38		168		36		178		75		457		574		336		329		90		1,329
INVESTING ACTIVITIES	379		379		(258	)	(414	)	(227	)	192		(707	)	(211	)	(199	)	113		231		(66	)
FINANCING ACTIVITIES	(553	)	(553	)	(132	)	13		1		23		(95	)	(1,231	)	(675	)	(293	)	(412	)	(2,611	)
FX ON CASH	17		17		(20	)	(35	)	(13	)	17		(51	)	—		—		—		—		—
KEY METRICS
	Q1				Q1		Q2		Q3		Q4				Q1		Q2		Q3		Q4
DAYS SALES OUTSTANDING (DSO)	70				74		72		78		77				62		69		66		72
DAYS OF SUPPLY ON HAND (DOS)	40				33		28		34		33				31		30		37		29
DAYS PAYABLES OUTSTANDING (DPO)	(58	)			(56	)	(62	)	(63	)	(59	)			(62	)	(63	)	(65	)	(59	)
CASH CONVERSION CYCLE (CCC)	52				51		38		49		51				31		36		38		42
L-T DEBT/EQUITY (%)	17.4	%			14.3	%	15.5	%	16.5	%	33.2	%			17.4	%	18.5	%	18.9	%	19.6	%
INVENTORY TURNS-PRODUCT ONLY (hist.)	6.0				7.8		7.9		7.1		6.6				8.2		7.5		7.1		7.8
ROE (12 mo. avg.)(%)	-20.1	%			-25.6	%	-38.6	%	-48.4	%	-62.6	%			9.0	%	11.1	%	9.9	%	6.4	%
ROA (12 mo. avg.)(%)	-6.3	%			-10.1	%	-14.2	%	-16.5	%	-19.6	%			4.1	%	4.9	%	4.3	%	2.7	%
ROIC (12 mo. avg.)(%)	-28.2	%			-38.0	%	-51.9	%	-63.7	%	-84.6	%			8.1	%	11.9	%	10.9	%	4.2	%
DEPREC. & AMORT. ($M)	156				194		172		179		225				193		196		189		208
CAPITAL INVESTMENTS, NET ($M)	22				165		120		119		62				127		108		62		144
NUMBER OF EMPLOYEES	27,596				33,423		33,556		32,780		29,108				33,904		33,350		34,440		34,909
REVENUE PER EMPLOYEE (12 mo. Avg.) ($K)	348				401		389		374		355				405		410		410		406

(1) Certain numbers presented in the first quarter of fiscal 2008 balance sheet has been reclassified from deferred revenue to accrued liabilities and other.

(2) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

CALCULATION OF NON-GAAP NET INCOME (LOSS)

	FY 2010				FY 2009 (1)										FY 2008 (1)
(in millions except per share amounts)	Q1		FY10		Q1		Q2		Q3		Q4		FY09		Q1		Q2		Q3		Q4		FY08
GAAP net income (loss)	(120	)	(120	)	(1,681	)	(218	)	(208	)	(154	)	(2,261	)	85		256		(38	)	81		384
Non-GAAP adjustments:
Purchased in-process research and development	—		—		—		—		3		—		3		—		1		24		6		31
Amortization of acquisition-related intangibles assets	52		52		80		72		72		72		296		74		74		76		86		310
Accretion of discounts on convertible debt	7		7		7		7		7		7		28		6		7		7		7		27
Stock-based compensation	41		41		49		52		49		42		192		48		52		57		57		214
Restructuring charges	45		45		63		222		46		64		395		113		32		14		104		263
Impairment of goodwill and acquisition-related intangible assets	6		6		1,445		—		—		15		1,460		—		—		—		—		—
(Gain) loss on equity investments, net	2		2		(8	)	3		(3	)	—		(8	)	(22	)	—		—		(10	)	(32	)
Settlement income	—		—		—		—		—		(47	)	(47	)	—		—		—		(45	)	(45	)
Tax effect of non-GAAP adjustments	(18	)	(18	)	(17	)	(26	)	(18	)	(20	)	(81	)	(17	)	(10	)	(5	)	(11	)	(43	)
Non-GAAP net income (loss)	15		15		(62	)	112		(52	)	(21	)	(23	)	287		412		135		275		1,109
Diluted non-GAAP net income (loss) per share	0.02		0.02		-0.08		0.15		-0.07		-0.03		-0.03		0.32		0.50		0.17		0.35		1.35
Growth vs. prior year (%)	125.0	%	-125.0	%	-125.0	%	-70.0	%	-141.2	%	-108.6	%	-295.0	%	190.9	%	56.3	%	-5.6	%	-30.0	%	21.6	%
Growth vs. prior quarter (%)	166.7	%			-122.9	%	287.5	%	-146.7	%	57.1	%			-36.0	%	56.3	%	-66.0	%	105.9	%

(1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

This operations analysis contains 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. The non-GAAP financial measures Sun uses include non-GAAP net income and diluted non-GAAP net income per share. Non-GAAP net income is defined as net income excluding purchased in-process research and development, amortization of acquisition-related intangibles assets, accretion of discounts on convertible debt, stock-based compensation, restructuring charges, impairment of goodwill and acquisition-related intangible assets, gain or loss on equity investments, net, settlement income and the tax effect of these non-GAAP adjustments. 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 illustrate Sun’s baseline performance before gains, losses or charges that are considered by Sun to be outside of 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 non-GAAP net income excludes items in the following categories:

Purchased In-Process Research and Development and Amortization of Acquisition-Related Intangibles Assets. Sun excludes purchased in-process research and development and 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 acquisitions of MySQL and 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 purchased in-process research and development and the amortization of acquisition-related 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, with respect to the amortization of acquisition-related intangible assets, had Sun internally developed these intangible assets, the amortization of such 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 intangible assets will recur in future periods. Although purchased in-process research and development expenses are not recurring with respect to past acquisitions, Sun will incur these expenses in connection with any future acquisitions.

Stock-Based Compensation. Stock-based compensation is a key incentive offered to Sun’s 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.

Accretion of Discounts on Convertible Debt, Restructuring Charges, Impairment of Goodwill and Acquisition-Related Intangible Assets, Gain or Loss on Equity Investments, Net, Settlement Income and Tax Effect of Non-GAAP Adjustments. Sun excludes these items because it believes that they are not directly related to the underlying performance of Sun’s core business operations. Other than impairment of goodwill, 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, 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 operations analysis 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.

EX-99.2

Investor Relations

SUN MICROSYSTEMS

Q110 Results

Financial Slides

Exhibit 99.2

http://www.sun.com/investors

2

Top Level P&L

Revenue

2,990

2,625

2,243

(382)

(15%)

(747)

(25%)

Gross Margin

1,201

1,064

973

(91)

(9%)

(228)

(19%)

Gross Margin %

40.2%

40.5%

43.4%

2.9

3.2

Operating Expenses **

2,851

1,282

1,073

(209)

(16%)

(1,778)

(62%)

Operating Income

(1,650)

(218)

(100)

118

54%

1,550

94%

Net Income

(1,681)

(154)

(120)

34

22%

1,561

93%

Operating Margin %

(55.2%)

(8.3%)

(4.5%)

3.8

50.7

EPS GAAP

($2.24)

($0.21)

($0.16)

$0.05

24%

$2.08

93%

Non-GAAP Net Income ***

(62)

(21)

15

36

171%

77

124%

EPS Non-GAAP ***

($0.08)

($0.03)

$0.02

$0.05

167%

$0.10

125%

Q109

Actuals*

Q409

Actuals*

Q110

Actuals

Q-Q 

Change

Q-Q

%Change

Y-Y

Change

Y-Y

%Change

Pts

Pts

Pts

Pts

*Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt

instruments. We adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new

standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

**Total Operating Expenses includes SG&A, R&D, Purchase IPRD, Restructuring, & Intangible Impairment charges.

***

See

Slide

14

for

a

reconciliation

of

GAAP

Net

Income

and

EPS

GAAP

to

Non-GAAP

Net

Income

and

EPS

Non-GAAP,

respectively.

PRODUCTS/SERVICES

Year/Year Change

Revenue

Products Revenue down (33)% Y/Y

Services Revenue down (14)% Y/Y

Fiscal Quarter

Services Revenue (% of Total)

Products Revenue (% of Total)

3

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

$0

$1,000

$2,000

$3,000

$4,000

38%

62%

62%

1%

38%

62%

62%

1%

39%

61%

61%

(1)%

37%

63%

63%

(1)%

41%

59%

59%

(7)%

40%

60%

60%

(11)%

42%

58%

58%

(20)%

47%

53%

53%

(31)%

(25)%

44%

56%

56%

Revenue

4

PRODUCTS/SERVICES

Year/Year Change

Q104

Q204

Q304

Q404

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

-50%

-40%

-30%

-20%

-10%-13%

0%

10%

20%

30%

40%

50%

-3%

-10%

3%

3%

-5%

-2%

-7%

2%

15%

21%

31%

15%

7%

1%

-1%

1%

-1%

-3%

-4%

-11%

-14%

-24%

-38%

-33%

4%

5%

5%

7%

6%

6%

0%

0%

7%

23%

21%

25%

20%

6%

7%

3%

1%

5%

3%

4%

-1%

-6%

-13%

-18%

-14%

Products Revenue

Services Revenue

Fiscal Quarter

5

Billings Disclosure by Category*

($Millions)

Q108

Q208

Q308

Q408

FY08

Q109

Q209

Q309

Q409

FY09

Q110

Systems Billings

Solaris SPARC Enterprise Servers

793

978

702

939

3,413

576

662

504

435

2,177

343

Change % Y/Y

23

8

-8

-13

1

-27

-32

-28

-54

-36

-40

Solaris SPARC CMT Servers

185

282

299

353

1,119

338

369

309

355

1,370

272

Change % Y/Y

70

105

110

61

84

83

31

3

0

22

-20

X64 Servers

169

157

186

195

707

176

175

145

178

675

159

Change % Y/Y

10

-11

14

1

3

4

11

-22

-9

-5

-10

Other Systems Products

356

367

282

286

1,292

156

130

83

65

434

50

Change % Y/Y

-15

-21

-27

-38

-26

-56

-65

-70

-77

-66

-68

Subtotal***

1,503

1,785

1,469

1,774

6,530

1,246

1,336

1,041

1,033

4,657

824

Change % Y/Y

13

6

1

-9

2

-17

-25

-29

-42

-29

-34

Software Billings

Java

29

45

57

88

220

34

67

73

108

281

54

Change % Y/Y

21

10

-4

-6

1

18

47

27

22

28

57

25

52

40

91

208

52

81

80

100

313

53

Change % Y/Y

-17

16

-20

24

5

111

55

101

10

51

2

44

59

49

64

216

38

42

34

45

159

24

Change % Y/Y

-12

-10

-4

16

-2

-14

-29

-30

-29

-26

-36

Subtotal***

97

156

147

244

644

124

189

187

253

754

131

Change % Y/Y

-6

3

-9

9

1

27

21

28

4

17

6

-126

-347

-142

-295

-910

-114

-156

-135

-187

-591

-93

Total Computer Systems Revenue***

1,475

1,594

1,473

1,722

6,264

1,257

1,369

1,094

1,099

4,819

862

Storage Billings

Disks & Storage Arrays

302

407

350

468

1,528

311

386

233

242

1,172

196

Change % Y/Y

3

6

1

21

8

3

-5

-34

-48

-23

-37

Open Storage

9

26

23

33

91

25

31

38

51

145

35

Change % Y/Y

55

155

37

83

162

21

63

57

59

40

Tape

196

282

195

279

953

188

245

202

149

784

140

Change % Y/Y

-4

2

-19

5

-4

-4

-13

3

-47

-18

-25

Other Storage

14

17

16

12

58

11

8

6

5

30

4

Change % Y/Y

69

41

458

-44

55

-16

-54

-62

-55

-48

-66

-17

-77

-54

-128

-276

-28

-100

-53

-66

-246

-50

Total Storage Revenue***

505

655

530

664

2,354

507

570

425

383

1,885

325

Total Products Revenue

1,980

2,249

2,003

2,386

8,618

1,764

1,939

1,519

1,482

6,704

1,187

Services Revenue

979

1,041

961

1,042

4,023

963

946

853

886

3,648

852

Change % Y/Y

-1

4

1

2

2

-2

-9

-11

-15

-9

-12

Professional and Education Services

260

325

302

352

1,239

263

335

242

257

1,097

204

Change % Y/Y

7

7

11

10

9

1

3

-20

-27

-11

-22

Total Services Revenue

1,239

1,366

1,263

1,394

5,262

1,226

1,281

1,095

1,143

4,745

1,056

Total Sun Revenue

3,219

3,615

3,266

3,780

13,880

2,990

3,220

2,613

2,625

11,449

2,243

Notes:

Blade

Servers

Billings

(includes

CMT,

X64,

and

Netra)

55

44

69

73

241

61

71

55

66

254

62

Change % Y/Y

638

122

162

71

151

11

62

-19

-9

5

2

•

Solaris SPARC Enterprise Servers includes the Datacenter & Midrange server systems

•

Solaris

SPARC

CMT

Servers

includes

all

CMT

Servers,

including

CMT

Blades

and

CMT

Netra

products

•

X64

Servers

includes

X64

Rack,

X64

Blades

and

X64

Netra

products

and

excludes

products

categorized

under

Open

Storage

•

Other

Systems

Products

includes

Workstations,

Volume

SPARC,

Netra

SPARC,

Integrated

Products

and

Networking

products

•

Open Storage includes the Sun Storage 7110,7210, and 7410, Sun Fire X4500, Sun Fire X4540, J4200, J4400 and J4500 products

•

Other Storage includes the NAS products minus Sun Storage 7110,7210, and 7410

MySQL / Infrastructure

Solaris, Management and Virtualization

Computer Systems Reserves and Adjustments

**

Storage Reserves and Adjustments

**

Hardware, Software Support  (Including Solaris &

Other Software)

*Billings represent the amount invoiced to customers for products and are subject to cancellation. Billings is not a GAAP financial measurement, and therefore is not an audited number. Billings 

differs from revenue in that billings are not adjusted for any reserves and are not subject to any of the conditions under GAAP that must be met before revenue is recognized.  Accordingly, 

amounts billed may not lead to revenue and billings should not be viewed as equivalent to, or a substitute for, GAAP revenue. 

**Reserves and adjustments represent deferrals, reserves and other reductions of invoiced amounts required under GAAP before revenue is recognized. 

***Excludes service revenue attributable to Systems, Software, and Storage including maintenance and support shown in the Hardware, Software Support line under Services Revenue

6

Billings Trends*

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

0

125

250

375

500

625

750

875

1,000

1,125

Growth Categories

Open Storage

Solaris, Man-

agement and Vir-

tualization

MySQL / Infrastruc-

ture

Java

X64 Servers

Solaris SPARC

CMT Servers

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

0

500

1,000

1,500

2,000

2,500

Traditional Categories

Other Storage

Tape

Disks & Storage

Arrays

Other Systems

Products

Solaris SPARC En

-

terprise Servers

Fiscal Quarter

Fiscal Quarter

*Billings represent the amount invoiced to customers for products and are subject to cancellation. Billings is not a GAAP financial measurement, and therefore is not an audited number. Billings differs from revenue in that billings are

not

adjusted

for

any

reserves

and

are

not

subject

to

any

of

the

conditions

under

GAAP

that

must

be

met

before

revenue

is

recognized.

Accordingly,

amounts

billed

may

not

lead

to

revenue

and

billings

should

not

be

viewed

as

equivalent

to, or a substitute for, GAAP revenue.

7

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

$0

$500

$1,000

$1,500

TOTAL SERVICES REVENUE

Fiscal Quarter

Year/Year Change

Services Revenue

Professional

Services/Edu

Services

Revenue (% of Total Services)

Support Services Revenue (% of Total

Services)

Support Services down (12)% Y/Y

Professional

Services/Edu

Services

down

(22)%

Y/Y

79%

79%

21%

1%

76%

76%

24%

5%

76%

76%

24%

3%

4%

75%

75%

25%

(1)%

79%

79%

21%

26%

74%

74%

(6)%

(13)%

78%

78%

22%

(18)%

78%

78%

22%

19%

81%

81%

(14)%

8

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

$0

$500

$1,000

$1,500

$2,000

Fiscal Quarter

PRODUCTS/SERVICES

Gross Margin %-Services

Gross Margin %-Products

Gross Margin %

Products Margin up 6.2 pts Y/Y

Services Margin down 1.8 pts Y/Y

Total Margin up 3.2 pts Y/Y

Gross Margin

48.5%

49.2%

48.0%

48.0%

1,561

48.7%

48.4%

48.4%

1,753

44.9%

45.2%

44.8%

44.8%

1,468

48.5%

47.3%

42.5%

42.5%

1,673

44.3%

40.2%

35.2%

35.2%

47.3%

1,201

46.1%

39.1%

39.1%

1,350

41.9%

42.3%

42.3%

43.3%

1,116

42.7%

37.7%

37.7%

44.3%

1,064

40.5%

43.4%

973

41.4%

41.4%

45.5%

9

PRODUCTS/SERVICES

Gross Margin %

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

35.0%

36.0%

37.0%

38.0%

39.0%

40.0%

41.0%

42.0%

43.0%

44.0%

45.0%

46.0%

47.0%

48.0%

49.0%

50.0%

48.0%

48.4%

44.8%

42.5%

35.2%

39.1%

42.3%

37.7%

41.4%

49.2%

48.7%

45.2%

47.3%

47.3%

46.1%

43.3%

44.3%

45.5%

48.5%

48.5%

44.9%

44.3%

40.2%

41.9%

42.7%

40.5%

43.4%

Products Gross Margin

Services Gross Margin

Total Gross Margin

Fiscal Quarter

10

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

$0

$300

$600

$900

$1,200

$1,500

$1,800

$446

$463

$457

$468

$423

$411

$393

$421

$354

$939

$995

$989

$1,032

$920

$916

$843

$782

$668

Fiscal Quarter

* Total Operating Expenses differ from SG&A and R&D Expenses because Total Operating Expenses includes IPRD, Restructuring, 

& Intangible Impairment charges.

Year/Year Change

R&D / SG&A Expense*

SG&A

R&D

(24)% Y/Y decrease

(3)%

(2)%

(2)%

2%

(3)%

(9)%

(15)%

(20)%

(24)%

11

Year/Year Growth

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

0

500

1,000

1,500

2,000

2,500

3,000

Fiscal Quarter

Deferred Revenue at $2.8B

Demand Metrics

*   Book to Bill Ratio assumes Services ratio 1:1

**  Services Backlog based on three month backlog horizon

Book to Bill Ratio & Backlog

14%

24%

6%

8%

9%

(4)%

5%

2%

1%

Q109

Q409

Q110

Book to Bill Ratio*

1.00

0.99

1.00

$1,922

$1,785

$1,836

Product & Services

Backlog ($M) **

12

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

$0

$700

$1,400

$2,100

$2,800

PRODUCTS/SERVICES

Fiscal Quarter

Year/Year Change

Deferred Revenue

Services Deferred Revenue

(% of Total)

Products Deferred Revenue

(% of Total)

Products Deferred Revenue up 15% Y/Y

Services Deferred Revenue down (5)% Y/Y

14%

22%

22%

78%

24%

71%

29%

29%

6%

71%

29%

29%

8%

69%

31%

31%

9%

69%

31%

31%

(4)%

65%

35%

35%

5%

66%

34%

34%

2%

67%

33%

33%

1%

64%

36%

36%

13

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

$0

$1,000

$2,000

$3,000

$4,000

Fiscal Quarter

North America/ Europe/ Emerging

Markets/ APAC*

Revenue

-Europe         

(% of Total)

Revenue

-APAC       

(% of Total)

Revenue

-North

America (% of Total)

Revenue -

Geo

North America down (19)% Y/Y

Europe down (29)% Y/Y

Emerging Markets down (33)% Y/Y

APAC down (23)% Y/Y

* Effective Q1FY09, we began utilizing revised geographic groupings. Percentage of total revenue figures have been adjusted to reflect the change in the compilation of the countries that make up each of our

geographic regions.

3,219

43%

43%

32%

13%

12%

12%

3,615

12%

12%

34%

15%

39%

39%

3,266

13%

13%

34%

14%

39%

39%

3,780

12%

12%

33%

14%

41%

41%

Revenue

-Emerging

Markets  (% of Total)

12%

12%

32%

15%

41%

41%

2,990

3,220

11%

11%

33%

17%

39%

39%

2,614

12%

12%

32%

16%

40%

40%

2,625

12%

12%

34%

14%

40%

40%

2,243

44%

44%

30%

14%

12%

12%

14

Non-GAAP Calculation of Net

Income

*Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. We adopted the new

standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter

ended September 27, 2009.

GAAP net income (loss)

85

256

(38)

81

(1,681)

(218)

(208)

(154)

(120)

Non-GAAP adjustments:

Purchased IPRD

0

1

24

6

0

0

3

0

0

74

74

76

86

80

72

72

72

52

Accretion of discounts on convertible debt

6

7

7

7

7

7

7

7

7

Stock based compensation

48

52

57

57

49

52

49

42

41

Restructuring charges

113

32

14

104

63

222

46

64

45

0

0

0

0

1,445

0

0

15

6

(Gain) loss on equity investments, net

(22)

0

0

(10)

(8)

3

(3)

0

2

Settlement income

0

0

0

(45)

0

0

0

(47)

0

Tax effect of non-GAAP adjustments

(17)

(10)

(5)

(11)

(17)

(26)

(18)

(20)

(18)

Non-GAAP net income (loss)

287

412

135

275

(62)

112

(52)

(21)

15

$0.32

$0.50

$0.17

$0.35

($0.08)

$0.15

($0.07)

($0.03)

$0.02

190.9%

56.3%

(5.6%)

(30.0%)

(125.0%)

(70.0%)

(141.2%)

(108.6%)

125.0%

(36.0%)

56.3%

(66.0%)

105.9%

(122.9%)

287.5%

(146.7%)

57.1%

166.7%

Q108

Actuals*

Q208

Actuals*

Q308

Actuals*

Q408

Actuals*

Q109

Actuals*

Q209

Actuals*

Q309

Actuals*

Q409

Actuals*

Q110

Actuals

Amortization of acquisition related

intangibles

Impairment of goodwill and Acquistition

–

related intangible assets

Diluted Non-GAAP net income (loss)

per share

Change vs. prior year (%)

Change vs. prior quarter (%)

15

Server Metrics

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

0

20

40

60

80

100

120

Total Server Units

Year/Year Change

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

0

5

10

15

20

25

30

35

x64* Server Units

Year/Year Change

Fiscal Quarter

Fiscal Quarter

* x64 servers include x86 32-bit and x64 64-bit servers and blades

7%

(5)%

13%

1%

26%

6%

2%

28%

2%

39%

15%

(9)%

(26)%

(14)%

(34)%

(13)%

(41)%

(30)%

12

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