Q4 FY 2006 Earnings Press Release

SUN MICROSYSTEMS REPORTS RESULTS FOR FOURTH QUARTER FISCAL YEAR 2006

-Total revenues up 29% year over year; up 21% sequentially
-Sequential revenue growth fueled by Solaris 10 Operating System and increasing acceptance of recently introduced products

SANTA CLARA, Calif. - July 25, 2006 - Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal fourth quarter, which ended June 30, 2006.

Revenues for the fourth quarter of fiscal 2006 were $3.828 billion, an increase of 29 percent as compared with $2.974 billion for the fourth quarter of fiscal 2005. Year over year revenue increase resulted from both acquisitions and increasing acceptance of the Solaris 10 Operating System, as well as recently introduced products. Computer Systems Products revenues increased 15% year over year, the second consecutive quarter of year over year revenue increase.

Net loss for the fourth quarter of fiscal 2006 on a GAAP basis was $301 million or a net loss of ($0.09) per share, as compared with net income of $50 million, or net income per share of $0.01, for the fourth quarter of fiscal 2005.

GAAP net loss for the fourth quarter of fiscal 2006 included: $86 million principally related to intangible asset amortization associated with recent acquisitions, $63 million of stock-based compensation charges relating to the adoption of SFAS 123R, $228 million of restructuring charges and an $8 million benefit for related tax effects, $70 million in impairment of acquisition-related intangible assets, $54 million in settlement income, and a $4 million loss on equity investments. In addition, we incurred a $58 million tax charge and $14 million reduction in other income due to a repatriation of foreign earnings. The net impact of these nine items was approximately ($0.13) per share.

Cash generated from operations for the fourth quarter was $410 million and cash and marketable debt securities balance at the end of the quarter was $4.848 billion.

"We're making excellent progress returning Sun to growth and profitability. Revenue, bookings and backlog are all up substantially - indicating we're gaining traction, market confidence and share," said Jonathan Schwartz, CEO, Sun Microsystems. "Our position is steadily improving - among a few highlights: the Solaris OS exceeded 5 million licenses in Q4, largely on Dell and HP servers, and on Sun. The Java platform continues to drive demand in the datacenter and on leading consumer devices. And by opening our UltraSPARC platforms to Ubuntu Linux - we're proving great products and customer choice matter."

"Our total revenues grew by more than 20% sequentially in the June quarter, and this was the largest sequential growth from Q3 to Q4 since fiscal 2000. Our revenue growth was fairly broad-based from both a geographic and industry basis. In the former Sun standalone business, more than half of our 15 geographies had double-digit product revenue growth year over year. The company did an outstanding job remaining focused on the fundamentals, including shipping product, controlling inventory, and managing the overall cash conversion cycle. And, we're starting the new fiscal year with a healthy product backlog of over $1 billion," said Michael Lehman, chief financial officer and executive vice president, Corporate Resources, Sun Microsystems.

Sun has scheduled a conference call today to discuss its financial results for Q4 fiscal year 2006 at 1:30 p.m. (PT), which is being broadcast live at www.sun.com/investors.

About Sun Microsystems, Inc.

A singular vision -- "The Network Is The Computer" -- guides Sun in the development of technologies that power the world's most important markets. Sun's philosophy of sharing innovation and building communities is at the forefront of the next wave of computing: the Participation Age. Sun can be found in more than 100 countries and on the Web at sun.com.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding returning to growth and profitability, increasing share and improving market position. 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: risks associated with Sun's ability to achieve expected cost reductions within expected time frames; increased competition; failure to rapidly and successfully develop and introduce new products; reliance on single-source suppliers; risks associated with Sun's ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; Sun's dependence on significant customers and specific industries; Sun's dependence on channel partners; and failure to successfully integrate acquired companies. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 25, 2005, December 25, 2005 and March 26, 2006. Sun assumes no obligation to, and does not currently 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 Sun's 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 its performance by excluding certain charges, gains and tax effects that may not be indicative of Sun's 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 its competitors' operating results. Sun includes these non-GAAP financial measures because management believes 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 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.

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