Sun Microsystems (JAVA) 8-K Results of Operations and Financial Condition

Exhibit 99.1

SUN MICROSYSTEMS REPORTS YEAR OVER YEAR REVENUE GROWTH FOR

SECOND CONSECUTIVE QUARTER; INCREASES GROSS MARGIN

PERCENTAGE SEQUENTIALLY

SANTA CLARA, Calif.—Oct. 14, 2004—Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal first quarter, which ended September 26, 2004.

Revenues for the first quarter grew to $2.628 billion, an increase of 3.6 percent as compared with $2.536 billion for the first quarter of fiscal 2004. Total gross margin as a percent of revenues was 39.8 percent, a decrease of 0.3 percentage points as compared with the first quarter of fiscal 2004. Excluding the $82 million charge related to a litigation settlement with Kodak, gross margin would have been $1.128 billion, or 42.9 percent on a non-GAAP basis. Net loss for the first quarter of fiscal 2005 was $174 million or $0.05 per share as compared with a net loss of $286 million or $0.09 per share for the first quarter of fiscal 2004. This loss includes a charge of $108 million for previously announced workforce and real estate restructuring, an $82 million charge related to litigation settlement, a $4 million loss on equity investments, and a $7 million benefit for related tax effects. Excluding these amounts, net income for the quarter on a non-GAAP basis would have been $13 million.

Cash generated from operating activities was $124 million for the quarter, and the balance of cash and marketable debt securities was $7.433 billion.

“The first fiscal quarter is usually our toughest but the management team executed well operationally,” said Scott McNealy, chairman and chief executive officer, Sun Microsystems, Inc. “Following a solid June quarter, we now have two quarters in a row of year over year revenue growth. And we are on offense again as a result of our newly revamped product line, a result of our sometimes controversial but continued commitment to R&D investments in the last three years. Stay tuned as we announce Solaris^TM 10 OS in November. We believe this is one of our best new products in maybe a decade. And it runs on Opteron and SPARC^®.”

Steve McGowan, Sun’s chief financial officer and executive vice president, corporate resources, said, “We’re very pleased with fiscal Q1 results. We grew revenue year-over-year for the second consecutive quarter, increased our gross margin percentage sequentially, lowered combined R&D and SG&A spending by over $260 million sequentially, and generated positive cash flow from operations.”

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

About Sun Microsystems, Inc.

Since its inception in 1982, a singular vision — “The Network Is The Computer^TM” — has propelled Sun Microsystems, Inc. (Nasdaq: SUNW) to its position as a leading provider of industrial-strength hardware, software and services that make the Net work. Sun can be found in more than 100 countries and on the World Wide Web athttp://www.sun.com.

FOR MORE INFORMATION

INVESTOR CONTACT:

Jeff Boldt (650) 786-0333

jeff.boldt@sun.com

MEDIA CONTACT:

May G. Petry (650) 786-0034

may.petry@sun.com

INDUSTRY ANALYST CONTACT:

Joanne Masters (650) 786-0847

joanne.masters@sun.com

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding that Sun is on the offense again as a result of our newly revamped product line and Sun’s expectation to announce Solaris 10 in November. Factors that could cause results to differ include risks associated with lack of success in technological advancements; lack of acceptance of new products; lack of marketing success; and cancellation or delay of projects, in particular Solaris 10. These and other risks are detailed from time to time in Sun’s periodic reports that are filed with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended June 30, 2004.

The company believes that presentation of results including items such as net income (loss) on a non-GAAP basis provides meaningful supplemental information to both management and investors that is indicative of the Company’s core operating results and facilitates comparison of operating results across reporting periods. The operating results for the quarter includes our preliminary accounting for the settlement with Kodak.

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

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

	Three Months Ended
	September 26, 2004			September 28, 2003
Net revenues:
Products	$	1,676		$	1,634
Services		952			902
Total net revenues		2,628			2,536
Cost of sales:
Cost of sales-products		1,031			965
Cost of sales-services		551			555
Total cost of sales		1,582			1,520
Gross margin		1,046			1,016
Operating expenses:
Research and development		416			467
Selling, general and administrative		684			798
Restructuring charges		108			1
Purchased in-process research and development		—			1
Total operating expenses		1,208			1,267
Operating loss		(162	)		(251	)
Loss on equity investments, net		(4	)		(25	)
Interest income, net		31			21
Loss before income taxes		(135	)		(255	)
Provision for income taxes		39			31
Net loss	$	(174	)	$	(286	)
Net loss per common share-basic and diluted	$	(0.05	)	$	(0.09	)
Shares used in the calculation of net loss per common share – basic and diluted		3,343			3,235

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

	September 26, 2004		June 30, 2004*
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,187	$	2,141
Short-term marketable debt securities		1,333		1,460
Accounts receivable, net		1,730		2,339
Inventories		416		464
Deferred and prepaid tax assets		77		62
Prepaid expenses and other current assets		765		837
Total current assets		6,508		7,303
Property, plant and equipment, net		1,918		1,996
Long-term marketable debt securities		3,913		4,007
Goodwill		406		406
Other acquisition-related intangible assets, net		109		127
Other non-current assets, net		626		664
	$	13,480	$	14,503
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings	$	—		257
Accounts payable		807		1,057
Accrued payroll-related liabilities		592		622
Accrued liabilities and other		1,273		1,308
Deferred revenues		1,346		1,617
Warranty reserve		240		252
Total current liabilities		4,258		5,113
Long-term debt		1,163		1,175
Long-term deferred revenues		524		557
Other non-current obligations		1,264		1,220
Total stockholders’ equity		6,271		6,438
	$	13,480	$	14,503

* Derived from audited financial statements

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

	Three Months Ended
	September 26, 2004			September 28, 2003
Cash flows from operating activities:
Net loss	$	(174	)	$	(286	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		164			194
Amortization of other intangible assets and unearned equity compensation		23			24
Loss on equity investments, net		4			25
Purchased in-process research and development		—			1
Changes in operating assets and liabilities:
Accounts receivable, net		606			470
Inventories		47			(11	)
Prepaid and other assets		49			39
Accounts payable		(252	)		(126	)
Other liabilities		(343	)		(379	)
Net cash provided by (used in) operating activities		124			(49	)
Cash flows from investing activities:
Purchases of marketable debt securities		(1,377	)		(3,491	)
Proceeds from sales of marketable debt securities		1,310			3,156
Proceeds from maturities of marketable debt securities		292			—
Proceeds from sales of equity investments, net		—			2
Acquisition of property, plant and equipment, net		(56	)		(55	)
Acquisition of spare parts and other assets		(12	)		(19	)
Payments for acquisitions, net of cash acquired		—			(85	)
Net cash provided by (used in) investing activities		157			(492	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		15			7
Principal payments on borrowings and other obligations		(250	)		—
Net cash provided by (used in) financing activities		(235	)		7
Net increase (decrease) in cash and cash equivalents		46			(534	)
Cash and cash equivalents, beginning of period		2,141			2,015
Cash and cash equivalents, end of period	$	2,187		$	1,481

SUN MICROSYSTEMS, INC.

NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS

(unaudited)

(in millions, except per share amounts)

	Three Months Ended
	September 26, 2004			September 28, 2003
Calculation of net income (loss) excluding special items:
Net loss	$	(174	)	$	(286	)
Restructuring charges		108			1
Purchased in-process research and development		—			1
Loss on equity investments, net		4			25
Settlement of litigation		82			—
Related tax effects		(7	)		—
Net income (loss) excluding special items	$	13		$	(259	)
Net income (loss) excluding special items per common share – basic	$	0.00		$	(0.08	)
Net income (loss) excluding special items per common share – diluted	$	0.00		$	(0.08	)
Shares used in the calculation of net income (loss) excluding special items per common share – basic		3,343			3,235
Shares used in the calculation of net income (loss) excluding special items per common share – diluted		3,356			3,235

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

STATEMENTS OF OPERATIONS (in millions except per share amounts)	FY 2005		FY 2004										FY 2003
	Q1		Q1		Q2		Q3		Q4		FY04		Q1		Q2		Q3		Q4		FY03
NET REVENUES
Products	1,676		1,634		1,944		1,711		2,066		7,355		1,880		2,013		1,897		2,003		7,793
Services	952		902		944		940		1,044		3,830		867		902		893		979		3,641
TOTAL	2,628		2,536		2,888		2,651		3,110		11,185		2,747		2,915		2,790		2,982		11,434
Growth vs. prior year (%)	3.6	%	-7.7	%	-0.9	%	-5.0	%	4.3	%	-2.2	%	-4.0	%	-6.2	%	-10.2	%	-12.8	%	-8.5	%
Growth vs. prior quarter (%)	-15.5	%	-15.0	%	13.9	%	-8.2	%	17.3	%			-19.7	%	6.1	%	-4.3	%	6.9	%
COST OF SALES
Products	949		965		1,107		980		1,238		4,290		1,093		1,118		1,021		1,110		4,342
Cost of settlement	82		0		0		0		0		0		0		0		0		0		0
Total	1,031		965		1,107		980		1,238		4,290		1,093		1,118		1,021		1,110		4,342
Services	551		555		573		603		648		2,379		522		534		526		568		2,150
TOTAL	1,582		1,520		1,680		1,583		1,886		6,669		1,615		1,652		1,547		1,678		6,492
% of revenue	60.2	%	59.9	%	58.2	%	59.7	%	60.6	%	59.6	%	58.8	%	56.7	%	55.4	%	56.3	%	56.8	%
PRODUCTS GROSS MARGIN
Products	727		669		837		731		828		3,065		787		895		876		893		3,451
% of product revenue	43.4	%	40.9	%	43.1	%	42.7	%	40.1	%	41.7	%	41.9	%	44.5	%	46.2	%	44.6	%	44.3	%
Cost of settlement	(82	)	0		0		0		0		0		0		0		0		0		0
% of product revenue	-4.9	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Total product margin	645		669		837		731		828		3,065		787		895		876		893		3,451
% of product revenue	38.5	%	40.9	%	43.1	%	42.7	%	40.1	%	41.7	%	41.9	%	44.5	%	46.2	%	44.6	%	44.3	%
SERVICES GROSS MARGIN	401		347		371		337		396		1,451		345		368		367		411		1,491
% of service revenue	42.1	%	38.5	%	39.3	%	35.9	%	37.9	%	37.9	%	39.8	%	40.8	%	41.1	%	42.0	%	41.0	%
TOTAL GROSS MARGIN EXCLUDING SETTLEMENT	1,128		1,016		1,208		1,068		1,224		4,516		1,132		1,263		1,243		1,304		4,942
% of revenue	42.9	%	40.1	%	41.8	%	40.3	%	39.4	%	40.4	%	41.2	%	43.3	%	44.6	%	43.7	%	43.2	%
Cost of settlement	(82	)	0		0		0		0		0		0		0		0		0		0
% of revenue	-3.1	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
TOTAL GROSS MARGIN	1,046		1,016		1,208		1,068		1,224		4,516		1,132		1,263		1,243		1,304		4,942
% of revenue	39.8	%	40.1	%	41.8	%	40.3	%	39.4	%	40.4	%	41.2	%	43.3	%	44.6	%	43.7	%	43.2	%
R&D	416		467		471		470		518		1,926		437		451		467		482		1,837
% of revenue	15.8	%	18.4	%	16.3	%	17.7	%	16.7	%	17.2	%	15.9	%	15.5	%	16.7	%	16.2	%	16.1	%
PURCHASED IN PROCESS R&D	0		1		0		0		69		70		0		4		0		0		4
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	2.2	%	0.6	%	0.0	%	0.1	%	0.0	%	0.0	%	0.0	%
SG&A	684		798		828		842		849		3,317		882		830		791		826		3,329
% of revenue	26.0	%	31.5	%	28.7	%	31.8	%	27.3	%	29.7	%	32.1	%	28.5	%	28.4	%	27.7	%	29.1	%
RESTRUCTURING CHARGES	108		1		(10	)	203		150		344		24		357		(4	)	(6	)	371
% of revenue	4.1	%	0.0	%	-0.3	%	7.7	%	4.8	%	3.1	%	0.9	%	12.2	%	-0.1	%	-0.2	%	3.2	%
IMPAIRMENT EXPENSE	0		0		0		0		49		49		0		2,125		0		0		2,125
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	1.6	%	0.4	%	0.0	%	72.9	%	0.0	%	0.0	%	18.6	%
TOTAL OPERATING EXPENSES	1,208		1,267		1,289		1,515		1,635		5,706		1,343		3,767		1,254		1,302		7,666
% of revenue	46.0	%	50.0	%	44.6	%	57.1	%	52.6	%	51.0	%	48.9	%	129.2	%	44.9	%	43.7	%	67.0	%
OPERATING INCOME (LOSS)	(162	)	(251	)	(81	)	(447	)	(411	)	(1,190	)	(211	)	(2,504	)	(11	)	2		(2,724	)
Operating margin	-6.2	%	-9.9	%	-2.8	%	-16.9	%	-13.2	%	-10.6	%	-7.7	%	-85.9	%	-0.4	%	0.1	%	-23.8	%
Interest income, net	31		21		20		23		30		94		39		38		33		45		155
Gain (loss) on equity investments, net	(4	)	(25	)	(36	)	3		(6	)	(64	)	(31	)	(11	)	(16	)	(26	)	(84	)
Settlement income	0		0		0		0		1,597		1,597		0		0		0		0		0
PRETAX INCOME (LOSS)	(135	)	(255	)	(97	)	(421	)	1,210		437		(203	)	(2,477	)	6		21		(2,653	)
Pretax income (loss) margin	-5.1	%	-10.1	%	-3.4	%	-15.9	%	38.9	%	3.9	%	-7.4	%	-85.0	%	0.2	%	0.7	%	-23.2	%
INCOME TAX PROVISION (BENEFIT)	39		31		28		339		427		825		(92	)	(194	)	2		1,060		776
TAX RATE (%)	N/A		N/A		N/A		N/A		N/A		N/A		45.5	%	7.8	%	44.0	%	N/A		N/A
NET INCOME (LOSS) (Reported)	(174	)	(286	)	(125	)	(760	)	783		(388	)	(111	)	(2,283	)	4		(1,039	)	(3,429	)
Growth vs. prior year (%)	39.2	%	-157.7	%	94.5	%	-19100.0	%	175.4	%	88.7	%	38.3	%	-429.7	%	110.8	%	-1803.3	%	-484.2	%
Growth vs. prior quarter (%)	-122.2	%	72.5	%	56.3	%	-508.0	%	203.0	%			-282.0	%	-1956.8	%	100.2	%	-26075.0	%
Net income (loss) margin	-6.6	%	-11.3	%	-4.3	%	-28.7	%	25.2	%	-3.5	%	-4.0	%	-78.3	%	0.1	%	-34.8	%	-30.0	%
EPS (Diluted) (Reported)	(0.05	)	(0.09	)	(0.04	)	(0.23	)	0.23		(0.12	)	(0.04	)	(0.72	)	0.00		(0.32	)	(1.07	)
Growth vs. prior year (%)	44.4	%	-125.0	%	94.4	%	N/A		171.9	%	-88.8	%	33.3	%	-453.8	%	100.0	%	-1700.0	%	-494.4	%
Growth vs. prior quarter (%)	-121.7	%	71.9	%	55.6	%	-475.0	%	200.0	%			-300.0	%	-1700.0	%	100.0	%	N/A
SHARES (CSE)(Diluted)	3,343		3,235		3,262		3,286		3,348		3,277		3,168		3,181		3,218		3,219		3,190
OUTSTANDING SHARES	3,344		3,240		3,280		3,293		3,336		3,336		3,116		3,194		3,200		3,236		3,236

	FY 2005		FY 2004										FY 2003
(in millions)	Q1		Q1		Q2		Q3		Q4		FY04		Q1		Q2		Q3		Q4		FY03
REVENUE BY GEOGRAPHY
UNITED STATES ($M)	1,105		1,162		1,214		1,037		1,355		4,768		1,242		1,267		1,212		1,327		5,048
Growth vs. prior year (%)	-4.9	%	-6.4	%	-4.2	%	-14.4	%	2.0	%	-5.5	%	-7.8	%	-11.8	%	-15.8	%	-22.6	%	-14.9	%
Growth vs. prior quarter (%)	-18.5	%	-12.4	%	4.5	%	-14.6	%	30.7	%			-27.5	%	2.0	%	-4.3	%	9.5	%
EUROPE ($M)	918		780		928		921		1,002		3,631		806		932		886		954		3,578
Growth vs. prior year (%)	17.7	%	-3.2	%	-0.4	%	4.0	%	5.0	%	1.5	%	-0.4	%	3.6	%	-4.1	%	-2.0	%	-0.8	%
Growth vs. prior quarter (%)	-8.4	%	-18.2	%	19.0	%	-0.8	%	8.8	%			-17.2	%	15.6	%	-4.9	%	7.7	%
JAPAN ($M)	183		185		192		207		178		762		250		243		243		200		936
Growth vs. prior year (%)	-1.1	%	-26.0	%	-21.0	%	-14.8	%	-11.0	%	-18.6	%	-12.9	%	-16.8	%	-12.6	%	-1.5	%	-11.7	%
Growth vs. prior quarter (%)	2.8	%	-7.5	%	3.8	%	7.8	%	-14.0	%			23.2	%	-2.8	%	0.0	%	-17.7	%
REST OF WORLD ($M)	422		409		554		486		575		2,024		449		473		449		501		1,872
Growth vs. prior year (%)	3.2	%	-8.9	%	17.1	%	8.2	%	14.8	%	8.2	%	7.4	%	-1.5	%	-3.6	%	-5.5	%	-1.2	%
Growth vs. prior quarter (%)	-26.6	%	-18.4	%	35.5	%	-12.3	%	18.3	%			-15.3	%	5.3	%	-5.1	%	11.6	%
% of Total Revenue
UNITED STATES (%)	42.0	%	45.8	%	42.1	%	39.2	%	43.6	%	42.6	%	45.2	%	43.5	%	43.4	%	44.5	%	44.1	%
EUROPE (%)	34.9	%	30.8	%	32.1	%	34.7	%	32.2	%	32.5	%	29.3	%	32.0	%	31.8	%	32.0	%	31.3	%
JAPAN (%)	7.0	%	7.3	%	6.6	%	7.8	%	5.7	%	6.8	%	9.1	%	8.3	%	8.7	%	6.7	%	8.2	%
REST OF WORLD (%)	16.1	%	16.1	%	19.2	%	18.3	%	18.5	%	18.1	%	16.3	%	16.2	%	16.1	%	16.8	%	16.4	%
PRODUCTS AND SERVICES REVENUE
COMPUTER SYSTEMS PRODUCTS ($M)	1,354		1,282		1,568		1,365		1,639		5,854		1,512		1,621		1,530		1,580		6,243
Growth vs. prior year (%)	5.6	%	-15.2	%	-3.3	%	-10.8	%	3.7	%	-6.2	%	-10.6	%	-11.8	%	-17.9	%	-21.1	%	-15.6	%
Growth vs. prior quarter (%)	-17.4	%	-18.9	%	22.3	%	-12.9	%	20.1	%			-24.5	%	7.2	%	-5.6	%	3.3	%
NETWORK STORAGE PRODUCTS ($M)	322		352		376		346		427		1,501		368		392		367		423		1,550
Growth vs. prior year (%)	-8.5	%	-4.3	%	-4.1	%	-5.7	%	0.9	%	-3.2	%	0.8	%	-7.1	%	-9.4	%	-16.2	%	-8.7	%
Growth vs. prior quarter (%)	-24.6	%	-16.8	%	6.8	%	-8.0	%	23.4	%			-27.1	%	6.5	%	-6.4	%	15.3	%
SUPPORT SERVICES ($M)	745		731		745		731		792		2,999		683		702		704		755		2,844
Growth vs. prior year (%)	1.9	%	7.0	%	6.1	%	3.8	%	4.9	%	5.5	%	16.8	%	12.3	%	10.7	%	9.1	%	12.1	%
Growth vs. prior quarter (%)	-5.9	%	-3.2	%	1.9	%	-1.9	%	8.3	%			-1.3	%	2.8	%	0.3	%	7.2	%
PROFESSIONAL AND KNOWLEDGE SERVICES ($M)	207		171		199		209		252		831		184		200		189		224		797
Growth vs. prior year (%)	21.1	%	-7.1	%	-0.5	%	10.6	%	12.5	%	4.3	%	-16.0	%	-10.3	%	-6.4	%	1.4	%	-7.9	%
Growth vs. prior quarter (%)	-17.9	%	-23.7	%	16.4	%	5.0	%	20.6	%			-16.7	%	8.7	%	-5.5	%	18.5	%
NET BOOKINGS ($M)	2,453		2,538		2,980		2,617		3,179		11,314		2,601		2,989		2,688		3,020		11,298
Growth vs. prior year (%)	-3.3	%	-2.4	%	-0.3	%	-2.6	%	5.3	%	0.1	%	-4.3	%	-6.4	%	-13.0	%	-13.4	%	-9.5	%
Growth vs. prior quarter (%)	-22.8	%	-16.0	%	17.4	%	-12.2	%	21.5	%			-25.4	%	14.9	%	-10.1	%	12.4	%
BACKLOG ($M)	659		707		799		765		834		834		695		769		667		705		705

BALANCE SHEETS (in millions)	FY 2005		FY 2004										FY 2003
	Q1		Q1		Q2		Q3		Q4				Q1		Q2		Q3		Q4
CASH & ST INVESTMENTS	3,520		2,520		2,160		2,372		3,601				2,632		2,606		2,636		3,062
ACCOUNTS RECEIVABLE, NET	1,730		1,905		2,214		2,201		2,339				2,133		2,291		2,296		2,381
RAW MATERIALS	69		103		93		92		78				103		85		73		93
WORK IN PROCESS	105		137		161		180		131				197		217		152		134
FINISHED GOODS	242		186		226		225		255				209		182		172		189
TOTAL INVENTORIES	416		426		480		497		464				509		484		397		416
OTHER CURRENT ASSETS	842		890		966		1,246		899				1,629		1,447		1,302		920
TOTAL CURRENT ASSETS	6,508		5,741		5,820		6,316		7,303				6,903		6,828		6,631		6,779
PP&E, NET	1,918		2,152		2,115		2,075		1,996				2,408		2,321		2,265		2,267
GOODWILL	406		389		466		470		406				2,182		326		326		326
LT MARKETABLE DEBT SECURITIES	3,913		3,006		3,001		3,111		4,007				2,612		2,671		2,902		2,679
OTHER NON-CURRENT ASSETS, NET	735		825		822		811		791				1,271		1,323		1,421		934
TOTAL ASSETS	13,480		12,113		12,224		12,783		14,503				15,376		13,469		13,545		12,985
SHORT TERM BORROWINGS	0		263		263		257		257				0		0		0		0
ACCOUNTS PAYABLE	807		780		906		1,011		1,057				798		809		870		903
ACCRUED LIABILITIES & OTHER	2,105		1,652		1,583		1,884		2,182				1,873		1,900		1,792		1,773
DEFERRED REVENUES	1,346		1,214		1,213		1,342		1,617				1,109		1,079		1,162		1,453
TOTAL CURRENT LIABILITIES	4,258		3,909		3,965		4,494		5,113				3,780		3,788		3,824		4,129
LT DEBT	1,163		1,215		1,214		1,209		1,175				1,500		1,519		1,495		1,531
LT DEFERRED REVENUES	524		462		463		537		557				547		520		512		450
OTHER NON-CURRENT OBLIGATIONS	1,264		364		343		990		1,220				240		369		354		384
STOCKHOLDERS’ EQUITY	6,271		6,163		6,239		5,553		6,438				9,309		7,273		7,360		6,491
TOTAL LIABILITIES & SE	13,480		12,113		12,224		12,783		14,503				15,376		13,469		13,545		12,985
CASH FLOW	Q1		Q1		Q2		Q3		Q4		FY04		Q1		Q2		Q3		Q4		FY03
OPERATING ACTIVITIES	124		(49	)	(282	)	385		2,172		2,226		182		141		379		335		1,037
INVESTING ACTIVITIES	157		(492	)	123		(338	)	(1,604	)	(2,311	)	126		(293	)	(108	)	(253	)	(528	)
FINANCING ACTIVITIES	(235	)	7		106		31		67		211		(696	)	73		10		95		(518	)
KEY METRICS	Q1		Q1		Q2		Q3		Q4				Q1		Q2		Q3		Q4
INVENTORY TURNS (hist.)	16.0		13.7		13.3		14.5		15.2				10.9		12.8		14.3		12.9
INVENTORY TURNS-PRODUCT ONLY (hist.)	10.3		9.0		8.7		9.3		9.8				7.8		9.0		9.9		8.6
DAYS SALES OUTSTANDING	59		68		69		75		68				70		71		74		72
DAYS PAYABLES OUTSTANDING	(46	)	(46	)	(49	)	(57	)	(50	)			(44	)	(44	)	(51	)	(48	)
DAYS OF SUPPLY ON HAND	24		25		26		28		22				28		26		23		22
L-T DEBT/EQUITY (%)	18.5	%	19.7	%	19.5	%	21.8	%	18.3	%			16.1	%	20.9	%	20.3	%	23.6	%
ROE (12 mo. avg.)(%)	-4.5	%	-52.8	%	-22.0	%	-36.2	%	-6.4	%			-5.3	%	-26.3	%	-27.6	%	-45.1	%
BOOK VALUE PER SHARE ($)	1.74		1.90		1.90		1.69		1.93				2.99		2.28		2.30		2.01
PRICE PER SHARE @ CLOSE	4.13		3.84		4.38		4.11		4.33				2.67		3.25		3.43		4.65
ROA (12 mo. avg.)(%)	-2.1	%	-27.7	%	-11.4	%	-17.6	%	-3.0	%			-3.1	%	-15.2	%	-15.8	%	-24.8	%
DEPREC. & AMORT. ($M)	187		218		189		175		231				272		275		216		265
CAPITAL EXPENDITURES ($M)	56		55		72		62		60				83		98		57		135
NUMBER OF EMPLOYEES	32,449		36,014		35,802		35,386		34,962				39,001		36,460		35,745		36,068
REV. PER EMP. (12 mo.)($K)	347.5		311.6		312.7		312.5		319.9				317.5		334.3		332.1		317.0
GM PER EMP. (12mo.)($K)	140.1		134.0		133.3		129.9		129.2				128.0		140.3		141.3		137.0
OP EXP AS % OF REV (12mo.)	50.1	%	67.6	%	45.7	%	48.6	%	51.0	%			48.9	%	65.0	%	65.0	%	67.0	%
NET INCOME (LOSS) PER EMP. (12mo.)($K)	(8.5	)	(100.1	)	(40.4	)	(62.5	)	(11.1	)			(13.3	)	(65.0	)	(65.2	)	(95.1	)

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS (in millions except per share amounts)	FY 2005		FY 2004										FY 2003
	Q1		Q1		Q2		Q3		Q4		FY04		Q1		Q2		Q3		Q4		FY03
GAAP net income (loss)	(174	)	(286	)	(125	)	(760	)	783		(388	)	(111	)	(2,283	)	4		(1,039	)	(3,429	)
In-process research and development	0		1		0		0		69		70		0		4		0		0		4
Restructuring charges	108		1		(10	)	203		150		344		24		357		(4	)	(6	)	371
Loss (gain) on equity investments, net	4		25		36		(3	)	6		64		31		11		16		26		84
Impairment expense	0		0		0		0		49		49		0		2,125		0		0		2,125
Settlement income	0		0		0		0		(1,597	)	(1,597	)	0		0		0		0		0
Settlement of litigation**	82		0		0		0		0		0		0		0		0		0		0
Valuation allowance on deferred tax assets	0		0		0		300		0		300		0		0		0		1,051		1,051
Related tax effects	(7	)	0		0		0		367		367		(22	)	(204	)	(5	)	(8	)	(239	)
Net income (loss) excluding special items	13		(259	)	(99	)	(260	)	(173	)	(791	)	(78	)	10		11		24		(33	)
Growth vs. prior year (%)	105.0	%	-232.1	%	-1090.0	%	-2463.6	%	-820.8	%	-2297.0	%	50.6	%	110.1	%	155.0	%	-65.2	%	84.1	%
EPS (Diluted) excluding special items *	0.00		(0.08	)	(0.03	)	(0.08	)	(0.05	)	(0.24	)	(0.02	)	0.00		0.00		0.01		(0.01	)
Growth vs. prior year (%)	100.0	%	-300.0	%	N/A		N/A		-600.0	%	-2300.0	%	60.0	%	100.0	%	100.0	%	-50.0	%	83.3	%
SHARES (CSE)(Diluted)	3,356		3,235		3,262		3,286		3,277		3,277		3,168		3,181		3,218		3,219		3,190
OUTSTANDING SHARES	3,344		3,240		3,280		3,293		3,336		3,336		3,116		3,194		3,200		3,236		3,236

* For the quarters ended June 30, 2004, 2003 and December 29, 2002, Sun used 3,327, 3,251 shares and 3,205 shares, respectively, to calculate the “Net income (loss) excluding special items.”

For all other periods, the number of shares used to calculate “EPS (Diluted) (Reported)” and “EPS (Diluted) excluding special items” were the same.

** Included in cost of sales – products