Q2 FY 2005 Earnings Press Release

SUN MICROSYSTEMS REPORTS PROFIT FOR FISCAL 2005 SECOND QUARTER

SANTA CLARA, Calif. - Jan 13, 2005 - Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal second quarter, which ended December 26, 2004.

Revenues for the second quarter were $2.843 billion, a decrease of 1.6 percent as compared with $2.888 billion for the second quarter of fiscal 2004. Total gross margin as a percent of revenues was 42.3 percent, an increase of 0.5 percentage points as compared with the second quarter of fiscal 2004. Net profit for the second quarter of fiscal 2005 was $19 million or $0.01 per share as compared with a net loss of $125 million or a net loss of $0.04 per share for the second quarter of fiscal 2004. This Q2 fiscal 2005 profit includes a charge of $24 million for previously announced workforce and real estate restructuring, a $9 million gain on equity investments, and a $6 million benefit for related tax effects. Excluding these amounts, net income for Q2 fiscal 2005 on a non-GAAP basis was $28 million or $0.01 per share as compared with a net loss, on a non-GAAP basis, in Q2 fiscal 2004 of $99 million or a net loss of $0.03 per share.

Cash generated from operating activities was $52 million for the quarter, and the cash and marketable debt securities balance increased to $7.464 billion.

"The second quarter delivered many positives, including x64 and x86 server unit volume growth, positive cash flow from operations, and stunning market reviews of Solaris 10 OS. It feels good to ring up a modest GAAP profit," said Scott McNealy, chairman and chief executive officer, Sun Microsystems, Inc. "Sun has one of its most rock solid product line-ups in history today. Innovation is increasingly marked by business models as much as technology. Sun's $1 per CPU/hour and the Sun Java Enterprise System are emerging models for recurring revenue. We are clearly reestablishing relevance in key markets."

Steve McGowan, Sun's chief financial officer and executive vice president, corporate resources, said, "We're pleased with our progress this quarter toward achieving our key financial goals. On a year-over-year basis, we increased our gross margin percentage, improved productivity by reducing R&D and SG&A expenses by $136 million and continued to generate positive cash flow from operations. This was all accomplished without compromising our product roadmaps."

Sun has scheduled a conference call today to discuss its earnings for the second quarter at 1:30 p.m. (PT), which is being broadcast live at www.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 at .

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding that innovation is increasingly marked by business models as much as technology, that Sun's $1 per CPU/hour and the Sun Java Enterprise System are emerging models for recurring revenue, that we have clearly reestablished relevance in key markets and that our key financial goals were all accomplished without compromising our product roadmaps. 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. 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 and our quarterly report on Form 10-Q for the fiscal quarter ended September 26, 2004.

The company believes that presentation of results including items such as net income (loss) and gross margin 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.

Sun, Sun Microsystems, the Sun logo, Solaris, Sun Java Enterprise System and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and in other countries.

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