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

Exhibit 99.1

SUN MICROSYSTEMS REPORTS RESULTS FOR

FIRST QUARTER FISCAL YEAR 2006

—Revenues up 3.7%

—GAAP loss of $0.04 per share; non-GAAP loss of $0.01 per share, excluding stock-based compensation charges

SANTA CLARA, Calif. - November 1, 2005 - Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal first quarter, which ended September 25, 2005, the Company’s first period that included results of operations from SeeBeyond Technology Corporation, which Sun acquired on August 25, 2005, and Storage Technology Corporation, which Sun acquired on August 31, 2005.

Revenues for the first quarter of fiscal 2006 were $2.726 billion, an increase of 3.7 percent as compared with $2.628 billion for the first quarter of fiscal 2005. Total gross margin as a percent of revenues was 44.1 percent, an increase of 3.3 percentage points, as compared with the first quarter of fiscal 2005.

Net loss for the first quarter of fiscal 2006 on a GAAP basis, which included $50 million with respect to stock based compensation related to the implementation of SFAS 123R in the quarter, was $123 million or a net loss of $0.04 per share, as compared with a net loss of $133 million, or a net loss of $0.04 per share, for the first quarter of fiscal 2005.

GAAP net loss for the first quarter of fiscal 2006 included a $60 million acquisitions-related charge for purchased in-process research and development costs, a $12 million charge for workforce and real estate restructuring, a $13 million gain on equity investments, and a $4 million benefit for related tax effects. Excluding these charges, gain and tax effects, non-GAAP net loss was $68 million or $0.02 per share. For comparability, if we exclude the stock based compensation charge relating to the implementation of SFAS 123R of $50 million, our non-GAAP net loss was $18 million or a loss of $0.01 per share.

Cash flow from operations for the first quarter was $224 million and cash and marketable debt securities balance at the end of the quarter was $4.533 billion.

Steve McGowan, Sun’s chief financial officer and executive vice president, corporate resources, said, “In addition to closing two significant acquisitions during the quarter, we

continued to build upon 16 consecutive years of generating positive cash flow from operations. We are very pleased with the strength of our balance sheet at quarter end that includes a cash position of over $4.5 billion and an increase in deferred revenues. “

“With the acquisitions of StorageTek and SeeBeyond this quarter, revenue grew and customers are responding very positively,” said Scott McNealy, chairman and CEO, Sun Microsystems. “We’re seeing momentum, with the doubling of price/performance for our UltraSPARC® IV+ processor-based Sun Fire^™ servers, clearing the 3,000,000 license mark with Solaris^™ 10 Operating System (OS), a 55% sequential increase in Sun Java^™ Enterprise System subscribers, and our Opteron^™ processor-based Sun Fire server business growing units 109% and our midrange storage arrays, led by the Sun StorEdge^™ 6920, growing revenue 15% year over year. We are confident in our product strategy, and as momentum behind our execution builds, we are beginning to fire on all cylinders.”

The Q1 fiscal 2006 results included $226 million in revenue, $99 million in gross margin, $17 million in research and development expense and $87 million in selling, general and administrative expense related to the operations of StorageTek and SeeBeyond following the respective closing dates of these acquisitions and reflect the impact of preliminary purchase price allocations and adjustments. We have estimated the fair value of certain tangible and intangible assets acquired and liabilities assumed in our preliminary allocation of purchase price. As permitted under GAAP, and for up to twelve months from the date of acquisition, some of these estimates may be subject to adjustment as we finalize the purchase price allocation.

Sun has scheduled a conference call today to discuss its earnings for Q1 fiscal year 2006 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^™” — 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:

Barry Plaga (626) 408-3100

barry.plaga@sun.com

MEDIA CONTACT:

Stephanie Vonallmen (650) 786-8589

stephanie.vonallmen@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 regarding the future results and performance of Sun Microsystems, Inc., including statements regarding our expectations with respect to our customers’ response to the StorageTek and SeeBeyond acquisitions, Sun’s momentum and Sun beginning to fire on all cylinders. 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 actual results to differ materially from those contained in our projections and forward-looking statements include: increased competition; failure to rapidly and successfully develop and introduce new products; our reliance on single-source suppliers; risks associated with our international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; pricing pressures; our dependence on significant customers and specific industries; our dependence on channel partners; and failure to successfully integrate acquisition candidates. Please also refer to Sun’s periodic reports that are filed from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2005. Sun assumes no obligation and does not intend to update these forward-looking statements.

To supplement Sun’s consolidated financial statements presented in accordance with GAAP, Sun provides non-GAAP net income (loss) and non-GAAP net income (loss) per share data. The presentation of these non-GAAP financial measures should be considered in addition to our GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Sun’s management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain charges, gains and tax effects that may not be indicative of our core business operating results. Sun believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Sun’s performance. These non-GAAP financial measures also facilitate comparisons to Sun’s historical performance and our competitors’ operating results. We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Non-GAAP measures in this press release are reconciled to comparable GAAP measures in the table entitled “Non-GAAP Calculation of Net Income (Loss) Excluding Special Items “ following the text of this press release.

Sun, Sun Microsystems, the Sun logo, Sun Fire, Solaris, Java, Sun StorEdge 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. Opteron is a trademark or registered trademark of Advanced Micro Devices, Inc.

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

	Three Months Ended
	September 25, 2005			September 26, 2004
Net revenues:
Products	$	1,704		$	1,676
Services		1,022			952
Total net revenues		2,726			2,628
Cost of sales:
Cost of sales-products (including stock-based compensation expense of $2(1))		966			1,004
Cost of sales-services (including stock-based compensation expense of $7(1))		558			551
Total cost of sales		1,524			1,555
Gross margin		1,202			1,073
Operating expenses:
Research and development (including stock-based compensation expense of $17(1))		439			416
Selling, general and administrative (including stock-based compensation expense of $24(1))		828			670
Restructuring charges		12			108
Purchased in-process research and development		60			—
Total operating expenses		1,339			1,194
Operating loss		(137	)		(121	)
Gain (loss) on equity investments, net		13			(4	)
Interest and other income, net		44			31
Loss before income taxes		(80	)		(94	)
Provision for income taxes		43			39
Net loss	$	(123	)	$	(133	)
Net income loss per common share-basic and diluted	$	(0.04	)	$	(0.04	)
Shares used in the calculation of net income loss per common share-basic and diluted		3,407			3,343

(1) For the three months ended September 25, 2005

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

	September 25, 2005		June 30, 2005*
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,508	$	2,051
Short-term marketable debt securities		993		1,345
Accounts receivable, net		2,087		2,231
Inventories		551		431
Deferred and prepaid tax assets		285		255
Prepaid expenses and other current assets		713		878
Total current assets		6,137		7,191
Property, plant and equipment, net		1,901		1,769
Long-term marketable debt securities		2,032		4,128
Goodwill		2,466		441
Other acquisition-related intangible assets, net		1,288		113
Other non-current assets, net		650		548
	$	14,474	$	14,190
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings	$	512	$	—
Accounts payable		1,091		1,167
Accrued payroll-related liabilities		836		713
Accrued liabilities and other		1,060		1,014
Deferred revenues		1,507		1,648
Warranty reserve		251		224
Total current liabilities		5,257		4,766
Long-term debt		603		1,123
Long-term deferred revenues		549		544
Other non-current obligations		1,410		1,083
Total stockholders’ equity		6,655		6,674
	$	14,474	$	14,190

* Derived from audited financial statements

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

	Three Months Ended
	September 25, 2005			September 26, 2004
Cash flows from operating activities:
Net loss	$	(123	)	$	(133	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		143			164
Amortization of other intangible assets		46			18
Stock-based compensation expense		50			5
Purchased in-process research and development		60			—
Loss (gain) on investments, net		(13	)		4
Changes in operating assets and liabilities:
Accounts receivable, net		449			606
Inventories		67			47
Prepaid and other assets		203			31
Accounts payable		(174	)		(252	)
Other liabilities		(484	)		(366	)
Net cash provided by operating activities		224			124
Cash flows from investing activities:
Purchases of marketable debt securities		(454	)		(1,377	)
Proceeds from sales of marketable debt securities		2,818			1,310
Proceeds from maturities of marketable debt securities		75			292
Proceeds from sales of equity investments, net		9			—
Purchases of property, plant and equipment, net		(48	)		(56	)
Purchases of spare parts and other assets		(20	)		(12	)
Payments for acquisitions, net of cash acquired		(3,150	)		—
Net cash provided by (used in) investing activities		(770	)		157
Cash flows from financing activities:
Proceeds from issuance of common stock, net		3			15
Principal payments on borrowings and other obligations		—			(250	)
Net cash provided by (used in) financing activities		3			(235	)
Net increase (decrease) in cash and cash equivalents		(543	)		46
Cash and cash equivalents, beginning of period		2,051			2,141
Cash and cash equivalents, end of period	$	1,508		$	2,187

SUN MICROSYSTEMS, INC.

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

(unaudited)

(in millions, except per share amounts)

	Three Months Ended
	September 25,			September 26,
	2005			2004
Calculation of net income (loss) excluding special items:
Net loss**	$	(123	)	$	(133	)
Restructuring charges		12			108
Purchased in-process research and development		60			—
Loss (gain) on equity investments, net		(13	)		4
Settlement of litigation*		—			55
Related tax effects		(4	)		(7	)
Net income (loss) excluding special items	$	(68	)	$	27
Net income (loss) excluding special items per common share - basic	$	(0.02	)	$	0.01
Net income (loss) excluding special items per common share - diluted	$	(0.02	)	$	0.01
Shares used in the calculation of net income (loss) excluding special items per common share – basic		3,407			3,343
Shares used in the calculation of net income (loss) excluding special items per common share – diluted		3,407			3,356

* Included in Cost of sales – products

** Net loss for the quarter ended September 25, 2005 included $50 million of stock-based compensation expense or approximately $0.01 per share.

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

STATEMENTS OF OPERATIONS (in millions except per share amounts)	FY 2006		FY 2005										FY 2004
	Q1		Q1		Q2		Q3		Q4		FY05		Q1		Q2		Q3		Q4		FY04
			(Restated)		(Restated)		(Restated)						(Restated)		(Restated)		(Restated)		(Restated)
NET REVENUES
Products	1,704		1,676		1,840		1,683		1,927		7,126		1,634		1,944		1,711		2,066		7,355
Services	1,022		952		1,001		944		1,047		3,944		902		944		940		1,044		3,830
TOTAL	2,726		2,628		2,841		2,627		2,974		11,070		2,536		2,888		2,651		3,110		11,185
Growth vs. prior year (%)	3.7	%	3.6	%	-1.6	%	-0.9	%	-4.4	%	-1.0	%	-7.7	%	-0.9	%	-5.0	%	4.3	%	-2.2	%
Growth vs. prior quarter (%)	-8.3	%	-15.5	%	8.1	%	-7.5	%	13.2	%			-15.0	%	13.9	%	-8.2	%	17.3	%
COST OF SALES
Products	966		949		1,065		975		1,130		4,119		965		1,107		980		1,238		4,290
Cost of settlement	0		55		0		0		0		55		0		0		0		0		0
Total	966		1,004		1,065		975		1,130		4,174		965		1,107		980		1,238		4,290
Services	558		551		578		565		613		2,307		555		573		603		648		2,379
TOTAL	1,524		1,555		1,643		1,540		1,743		6,481		1,520		1,680		1,583		1,886		6,669
% of revenue	55.9	%	59.2	%	57.8	%	58.6	%	58.6	%	58.5	%	59.9	%	58.2	%	59.7	%	60.6	%	59.6	%
PRODUCTS GROSS MARGIN
Products	738		727		775		708		797		3,007		669		837		731		828		3,065
% of product revenue	43.3	%	43.4	%	42.1	%	42.1	%	41.4	%	42.2	%	40.9	%	43.1	%	42.7	%	40.1	%	41.7	%
Cost of settlement	0		(55	)	0		0		0		(55	)	0		0		0		0		0
% of product revenue	0.0	%	-3.3	%	0.0	%	0.0	%	0.0	%	-0.8	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Total product margin	738		672		775		708		797		2,952		669		837		731		828		3,065
% of product revenue	43.3	%	40.1	%	42.1	%	42.1	%	41.4	%	41.4	%	40.9	%	43.1	%	42.7	%	40.1	%	41.7	%
Services gross margin	464		401		423		379		434		1,637		347		371		337		396		1,451
% of service revenue	45.4	%	42.1	%	42.3	%	40.1	%	41.5	%	41.5	%	38.5	%	39.3	%	35.9	%	37.9	%	37.9	%
Total excluding settlement	1,202		1,128		1,198		1,087		1,231		4,644		1,016		1,208		1,068		1,224		4,516
% of revenue	44.1	%	42.9	%	42.2	%	41.4	%	41.4	%	42.0	%	40.1	%	41.8	%	40.3	%	39.4	%	40.4	%
Cost of settlement	0		(55	)	0		0		0		(55	)	0		0		0		0		0
% of revenue	0.0	%	-2.1	%	0.0	%	0.0	%	0.0	%	-0.5	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
TOTAL GROSS MARGIN	1,202		1,073		1,198		1,087		1,231		4,589		1,016		1,208		1,068		1,224		4,516
% of revenue	44.1	%	40.8	%	42.2	%	41.4	%	41.4	%	41.5	%	40.1	%	41.8	%	40.3	%	39.4	%	40.4	%
R&D	439		416		447		450		472		1,785		467		471		470		518		1,926
% of revenue	16.1	%	15.8	%	15.7	%	17.1	%	15.9	%	16.1	%	18.4	%	16.3	%	17.7	%	16.7	%	17.2	%
PURCHASED IN PROCESS R&D	60		0		0		0		0		0		1		0		0		69		70
% of revenue	2.2	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	2.2	%	0.6	%
SG&A	828		670		726		735		788		2,919		798		828		842		849		3,317
% of revenue	30.4	%	25.5	%	25.6	%	28.0	%	26.5	%	26.4	%	31.5	%	28.7	%	31.8	%	27.3	%	29.7	%
RESTRUCTURING CHARGES	12		108		24		44		86		262		1		(10	)	203		150		344
% of revenue	0.4	%	4.1	%	0.8	%	1.7	%	2.9	%	2.4	%	0.0	%	-0.3	%	7.7	%	4.8	%	3.1	%
IMPAIRMENT EXPENSE	0		0		0		0		0		0		0		0		0		49		49
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	1.6	%	0.4	%
TOTAL OPERATING EXPENSES	1,339		1,194		1,197		1,229		1,346		4,966		1,267		1,289		1,515		1,635		5,706
% of revenue	49.1	%	45.4	%	42.1	%	46.8	%	45.3	%	44.9	%	50.0	%	44.6	%	57.1	%	52.6	%	51.0	%
OPERATING INCOME (LOSS)	(137	)	(121	)	1		(142	)	(115	)	(377	)	(251	)	(81	)	(447	)	(411	)	(1,190	)
Operating margin	-5.0	%	-4.6	%	0.0	%	-5.4	%	-3.9	%	-3.4	%	-9.9	%	-2.8	%	-16.9	%	-13.2	%	-10.6	%
Interest and other income, net	44		31		33		37		32		133		21		20		23		30		94
Gain (loss) on equity investments, net	13		(4	)	9		2		(1	)	6		(25	)	(36	)	3		(6	)	(64	)
Settlement income	0		0		0		54		0		54		0		0		0		1,597		1,597
PRETAX INCOME (LOSS)	(80	)	(94	)	43		(49	)	(84	)	(184	)	(255	)	(97	)	(421	)	1,210		437
Pretax income (loss) margin	-2.9	%	-3.6	%	1.5	%	-1.9	%	-2.8	%	-1.7	%	-10.1	%	-3.4	%	-15.9	%	38.9	%	3.9	%
INCOME TAX PROVISION (BENEFIT)	43		39		39		(21	)	(134	)	(77	)	33		29		333		430		825
TAX RATE (%)	N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A
NET INCOME (LOSS) (Reported)*****	(123	)	(133	)	4		(28	)	50		(107	)	(288	)	(126	)	(754	)	780		(388	)
Growth vs. prior year (%)	7.5	%	53.8	%	103.2	%	96.3	%	-93.6	%	72.4	%	-159.5	%	94.5	%	-18950.0	%	178.5	%	88.5	%
Growth vs. prior quarter (%)	-346.0	%	-117.1	%	103.0	%	-800.0	%	278.6	%			71.0	%	56.3	%	-498.4	%	203.4	%
Net income (loss) margin	-4.5	%	-5.1	%	0.1	%	-1.1	%	1.7	%	-1.0	%	-11.4	%	-4.4	%	-28.4	%	25.1	%	-3.5	%
EPS (Diluted) (Reported)	(0.04	)	(0.04	)	0.00		(0.01	)	0.01		(0.03	)	(0.09	)	(0.04	)	(0.23	)	0.23		(0.12	)
Growth vs. prior year (%)	0.0	%	55.6	%	100.0	%	95.7	%	-95.7	%	75.0	%	-125.0	%	94.4	%	N/A		174.2	%	-88.7	%
Growth vs. prior quarter (%)	-500.0	%	-117.4	%	100.0	%	N/A		100.0	%			71.0	%	55.6	%	-475.0	%	200.0	%
SHARES (CSE)(Diluted)	3,407		3,343		3,400		3,376		3,410		3,368		3,235		3,262		3,286		3,348		3,277
OUTSTANDING SHARES	3,410		3,344		3,375		3,383		3,410		3,410		3,240		3,280		3,293		3,336		3,336

The information above has been restated to reflect the adjustments that are further discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the SEC on September 13, 2005.

	FY 2006		FY 2005										FY 2004
(in millions)	Q1		Q1		Q2		Q3		Q4		FY05		Q1		Q2		Q3		Q4		FY04
REVENUE BY GEOGRAPHY
UNITED STATES ($M)	1,159		1,105		1,130		981		1,176		4,392		1,162		1,214		1,037		1,356		4,769
Growth vs. prior year (%)	4.9	%	-4.9	%	-6.9	%	-5.3	%	-13.3	%	-7.9	%	-6.4	%	-4.2	%	-14.4	%	2.2	%	-5.5	%
Growth vs. prior quarter (%)	-1.4	%	-18.5	%	2.3	%	-13.1	%	19.9	%			-12.4	%	4.5	%	-14.6	%	30.8	%
EUROPE ($M)	912		918		975		938		1,064		3,895		780		966		941		1,026		3,713
Growth vs. prior year (%)	-0.7	%	17.7	%	0.9	%	-0.3	%	3.7	%	4.9	%	-3.2	%	3.6	%	6.2	%	7.5	%	3.8	%
Growth vs. prior quarter (%)	-14.3	%	-10.5	%	6.2	%	-3.8	%	13.4	%			-18.2	%	23.8	%	-2.6	%	9.0	%
JAPAN ($M)	166		183		190		199		158		730		185		192		207		178		762
Growth vs. prior year (%)	-9.3	%	-1.1	%	-1.0	%	-3.9	%	-11.2	%	-4.2	%	-26.0	%	-21.0	%	-14.8	%	-11.0	%	-18.6	%
Growth vs. prior quarter (%)	5.1	%	2.8	%	3.8	%	4.7	%	-20.6	%			-7.5	%	3.8	%	7.8	%	-14.0	%
REST OF WORLD ($M)	489		422		546		509		576		2,053		409		516		466		550		1,941
Growth vs. prior year (%)	15.9	%	3.2	%	5.8	%	9.0	%	4.7	%	5.8	%	-8.9	%	9.1	%	3.8	%	9.8	%	3.7	%
Growth vs. prior quarter (%)	-15.1	%	-23.3	%	29.4	%	-7.0	%	13.2	%			-18.4	%	26.2	%	-9.7	%	18.0	%
% of Total Revenue
UNITED STATES (%)	42.5	%	42.0	%	39.8	%	37.4	%	39.5	%	39.7	%	45.8	%	42.1	%	39.1	%	43.6	%	42.6	%
EUROPE (%)	33.5	%	34.9	%	34.3	%	35.7	%	35.8	%	35.2	%	30.8	%	33.4	%	35.5	%	33.0	%	33.2	%
JAPAN (%)	6.1	%	7.0	%	6.7	%	7.6	%	5.3	%	6.6	%	7.3	%	6.6	%	7.8	%	5.7	%	6.8	%
REST OF WORLD (%)	17.9	%	16.1	%	19.2	%	19.3	%	19.4	%	18.5	%	16.1	%	17.9	%	17.6	%	17.7	%	17.4	%
PRODUCTS AND SERVICES REVENUE
COMPUTER SYSTEMS PRODUCTS ($M)	1,274		1,354		1,505		1,391		1,576		5,826		1,282		1,568		1,365		1,639		5,854
Growth vs. prior year (%)	-5.9	%	5.6	%	-4.0	%	1.9	%	-3.8	%	-0.5	%	-15.2	%	-3.3	%	-10.8	%	3.7	%	-6.2	%
Growth vs. prior quarter (%)	-19.2	%	-17.4	%	11.2	%	-7.6	%	13.3	%			-18.9	%	22.3	%	-12.9	%	20.1	%
NETWORK STORAGE PRODUCTS ($M)	430		322		335		292		351		1,300		352		376		346		427		1,501
Growth vs. prior year (%)	33.5	%	-8.5	%	-10.9	%	-15.6	%	-17.8	%	-13.4	%	-4.3	%	-4.1	%	-5.7	%	0.9	%	-3.2	%
Growth vs. prior quarter (%)	22.5	%	-24.6	%	4.0	%	-12.8	%	20.2	%			-16.8	%	6.8	%	-8.0	%	23.4	%
SUPPORT SERVICES ($M)	835		745		774		734		778		3,031		731		745		731		792		2,999
Growth vs. prior year (%)	12.1	%	1.9	%	3.9	%	0.4	%	-1.8	%	1.1	%	7.0	%	6.1	%	3.8	%	4.9	%	5.5	%
Growth vs. prior quarter (%)	7.3	%	-5.9	%	3.9	%	-5.2	%	6.0	%			-3.2	%	1.9	%	-1.9	%	8.3	%
CLIENT SOLUTIONS & EDUCATIONAL SERVICES ($M)	187		207		227		210		269		913		171		199		209		252		831
Growth vs. prior year (%)	-9.7	%	21.1	%	14.1	%	0.5	%	6.7	%	9.9	%	-7.1	%	-0.5	%	10.6	%	12.5	%	4.3	%
Growth vs. prior quarter (%)	-30.5	%	-17.9	%	9.7	%	-7.5	%	28.1	%			-23.7	%	16.4	%	5.0	%	20.6	%
NET BOOKINGS, SUN ONLY ($M)	2,413		2,453		2,976		2,536		3,078		11,043		2,538		2,980		2,617		3,179		11,314
Growth vs. prior year (%)	-1.6	%	-3.3	%	-0.1	%	-3.1	%	-3.2	%	-2.4	%	-2.4	%	-0.3	%	-2.6	%	5.3	%	0.1	%
Growth vs. prior quarter (%)	-21.6	%	-22.8	%	21.3	%	-14.8	%	21.4	%			-16.0	%	17.4	%	-12.2	%	21.5	%
BACKLOG, SUN ONLY ($M)	718		659		792		701		805				707		799		765		834

BALANCE SHEETS (in millions)	FY 2006		FY 2005										FY 2004
	Q1		Q1		Q2		Q3		Q4				Q1		Q2		Q3		Q4
			(Restated)		(Restated)		(Restated)						(Restated)		(Restated)		(Restated)		(Restated)
CASH & ST INVESTMENTS	2,501		3,520		3,639		3,135		3,396				2,520		2,160		2,372		3,601
ACCOUNTS RECEIVABLE, NET	2,087		1,730		1,840		2,020		2,231				1,905		2,214		2,201		2,339
RAW MATERIALS	82		71		64		75		48				107		98		144		82
WORK IN PROCESS	183		158		157		121		121				141		164		123		134
FINISHED GOODS	286		187		208		192		262				178		218		230		248
TOTAL INVENTORIES	551		416		429		388		431				426		480		497		464
OTHER CURRENT ASSETS	998		1,102		1,220		1,419		1,133				1,168		1,244		1,524		1,159
TOTAL CURRENT ASSETS	6,137		6,768		7,128		6,962		7,191				6,019		6,098		6,594		7,563
PP&E, NET	1,901		1,918		1,903		1,851		1,769				2,152		2,115		2,075		1,996
GOODWILL	2,466		406		406		441		441				389		466		470		406
LT MARKETABLE DEBT SECURITIES	2,032		3,913		3,825		4,222		4,128				3,006		3,001		3,111		4,007
OTHER NON-CURRENT ASSETS, NET	1,938		804		774		704		661				857		856		853		833
TOTAL ASSETS	14,474		13,809		14,036		14,180		14,190				12,423		12,536		13,103		14,805
SHORT TERM BORROWINGS	512		0		0		0		0				263		263		257		257
ACCOUNTS PAYABLE	1,091		807		963		1,071		1,167				780		906		1,011		1,057
ACCRUED LIABILITIES & OTHER	2,147		2,108		2,049		2,090		1,951				1,661		1,595		1,898		2,199
DEFERRED REVENUES	1,507		1,346		1,313		1,399		1,648				1,214		1,213		1,342		1,617
TOTAL CURRENT LIABILITIES	5,257		4,261		4,325		4,560		4,766				3,918		3,977		4,508		5,130
LT DEBT	603		1,163		1,145		1,116		1,123				1,215		1,214		1,209		1,175
LT DEFERRED REVENUES	549		524		519		519		544				462		463		537		557
OTHER NON-CURRENT OBLIGATIONS	1,410		1,504		1,482		1,429		1,083				622		601		1,248		1,460
STOCKHOLDERS’ EQUITY	6,655		6,357		6,565		6,556		6,674				6,206		6,281		5,601		6,483
TOTAL LIABILITIES & SE	14,474		13,809		14,036		14,180		14,190				12,423		12,536		13,103		14,805
CASH FLOW	Q1		Q1		Q2		Q3		Q4		FY05		Q1		Q2		Q3		Q4		FY04
OPERATING ACTIVITIES	224		124		52		(2	)	195		369		(49	)	(282	)	385		2,172		2,226
INVESTING ACTIVITIES	(770	)	157		(475	)	(345	)	238		(425	)	(492	)	123		(338	)	(1,604	)	(2,311	)
FINANCING ACTIVITIES	3		(235	)	99		18		84		(34	)	7		106		31		67		211
KEY METRICS	Q1		Q1		Q2		Q3		Q4				Q1		Q2		Q3		Q4
INVENTORY TURNS (hist.)	13.3		15.9		14.7		15.0		14.5				13.7		13.3		14.5		15.2
INVENTORY TURNS-PRODUCT ONLY (hist.)	8.6		10.3		9.4		9.7		9.3				9.0		8.7		9.3		9.8
DAYS SALES OUTSTANDING	69		59		58		69		68				68		69		75		68
DAYS PAYABLES OUTSTANDING	(64	)	(47	)	(53	)	(63	)	(60	)			(46	)	(49	)	(57	)	(50	)
DAYS OF SUPPLY ON HAND	33		24		23		23		22				25		26		28		22
L-T DEBT/EQUITY (%)	9.1	%	18.3	%	17.4	%	17.0	%	16.8	%			19.6	%	19.3	%	21.6	%	18.1	%
ROE (12 mo. avg.)(%)	-1.5	%	-3.8	%	-1.6	%	9.6	%	-1.6	%			-52.0	%	-21.3	%	-35.1	%	-6.3	%
BOOK VALUE PER SHARE ($)	1.95		1.90		1.95		1.94		1.96				1.92		1.91		1.70		1.94
PRICE PER SHARE @ CLOSE	3.87		4.13		5.44		4.03		3.73				3.84		4.38		4.11		4.33
ROA (12 mo. avg.)(%)	-0.7	%	-1.7	%	-0.7	%	4.4	%	-0.8	%			-27.0	%	-10.8	%	-16.8	%	-2.9	%
DEPREC. & AMORT. ($M)	189		187		191		191		198				218		189		175		231
CAPITAL INVESTMENTS ($M)	48		56		85		58		58				55		72		62		60
SPARES INVESTMENTS ($M)	20		12		30		26		22				19		7		30		15
NUMBER OF EMPLOYEES	38,588		32,449		31,855		31,999		31,117				36,014		35,802		35,386		34,962
REV. PER EMP. (12 mo.)($K)	289.4		347.5		352.5		350.2		355.8				311.6		312.7		312.5		319.9
GM PER EMP. (12mo.)($K)	122.3		140.9		143.2		143.2		147.5				134.0		133.3		129.9		129.2
OP EXP AS % OF REV (12mo.)	45.8	%	50.0	%	49.3	%	46.9	%	44.9	%			67.6	%	45.7	%	48.6	%	51.0	%
NET INCOME (LOSS) PER EMP. (12mo.)($K)	(2.5	)	(7.2	)	(3.2	)	19.5		(3.4	)			(98.9	)	(39.2	)	(61.1	)	(11.1	)

The information above has been restated to reflect the adjustments that are further discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the SEC on September 13, 2005.

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)

NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS (in millions except per share amounts)	FY 2006		FY 2005										FY 2004
	Q1		Q1		Q2		Q3*		Q4****		FY05*		Q1		Q2		Q3		Q4		FY04
			(Restated)		(Restated)		(Restated)						(Restated)		(Restated)		(Restated)		(Restated)
GAAP net income (loss)*****	(123	)	(133	)	4		(28	)	50		(107	)	(288	)	(126	)	(754	)	780		(388	)
In-process research and development	60		0		0		0		0		0		1		0		0		69		70
Restructuring charges	12		108		24		44		86		262		1		(10	)	203		150		344
Loss (gain) on equity investments, net	(13	)	4		(9	)	(2	)	1		(6	)	25		36		(3	)	6		64
Impairment expense	0		0		0		0		0		0		0		0		0		49		49
Settlement income	0		0		0		(54	)	0		(54	)	0		0		0		(1,597	)	(1,597	)
Settlement of litigation**	0		55		0		0		0		55		0		0		0		0		0
Valuation allowance on deferred tax assets	0		0		0		(34	)	0		(34	)	0		0		300		0		300
Related tax effects	(4	)	(7	)	(6	)	(7	)	(6	)	(26	)	0		0		0		367		367
Net income (loss) excluding special items	(68	)	27		13		(81	)	131		90		(261	)	(100	)	(254	)	(176	)	(791	)
Growth vs. prior year (%)	-351.9	%	110.3	%	113.0	%	68.1	%	174.4	%	111.4	%	-234.6	%	-1100.0	%	-2409.1	%	-355.1	%	-6691.7	%
EPS (Diluted) excluding special items ***	(0.02	)	0.01		0.00		(0.02	)	0.04		0.03		(0.08	)	(0.03	)	(0.08	)	(0.05	)	(0.24	)
Growth vs. prior year (%)	-300.0	%	112.5	%	100.0	%	75.0	%	180.0	%	112.5	%	-300.0	%	-100.0	%	-100.0	%	-350.0	%	-100.0	%
SHARES (CSE)(Diluted)	3,407		3,343		3,400		3,376		3,410		3,368		3,235		3,262		3,286		3,348		3,277
OUTSTANDING SHARES	3,410		3,344		3,375		3,383		3,410		3,410		3,240		3,280		3,293		3,336		3,336

* The non-GAAP calculation of Net income (loss) excluding special items for the three month period ended March 27, 2005 and year ended June 30, 2005 includes a $69 million benefit for the impact of the change in Dutch withholding tax legislation which was effected in the third quarter of fiscal 2005 and a $213 benefit arising from adjustments to our income tax reserves resulting from the conclusion of a U.S. and foreign income tax audit.

** Included in Cost of sales – products

*** For the year ended June 30, 2005, and the quarters ended September 26, 2004, and June 30, 2004, Sun used 3,392, 3,356, and 3,327 shares, respectively, to calculate the “EPS (Diluted) excluding special items”. For all other periods, the number of shares used to calculate “EPS (Diluted) (Reported)” and “EPS (Diluted) excluding special items” was the same.

**** The non-GAAP calculation of net income excluding special items for the three months ended June 30, 2005 includes a $213 million benefit arising from adjustments to our income tax reserves resulting from the conclusion of a U.S. and foreign income tax audit.

***** Net loss for the quarter ended September 25, 2005 included $50 million of stock-based compensation expense or approximately $0.01 per share.

The information above has been restated to reflect the adjustments that are further discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the SEC on September 13, 2005.