Q2 FY 2007 Earnings Press Release

Sun Microsystems Returns to Profitability: Reports Results for Second Quarter Fiscal Year 2007

SANTA CLARA, Calif. - January 23, 2007 - Sun Microsystems, Inc. (NASDAQ: SUNW) reported results today for its fiscal second quarter, which ended December 31, 2006.

Revenues for the second quarter of fiscal 2007 were $3.566 billion, an increase of 7 percent as compared with $3.337 billion for the second quarter of fiscal 2006. The year-over-year revenue increase was due to sales of SPARC® chip multithreading (CMT) servers and x64-based servers as well as the increased acceptance of the SolarisTM 10 Operating System. Computer Systems products revenues increased 14 percent year-over-year, the fourth consecutive quarter of year-over-year revenue growth.

Net income for the second quarter of fiscal 2007 on a GAAP basis was $126 million or $0.03 per share on a diluted basis, as compared with a net loss of $223 million, or ($0.07) per share, for the second quarter of fiscal 2006.

GAAP net income for the second quarter of fiscal 2007 included: $58 million of stock-based compensation charges, $26 million of restructuring and related impairment of assets charges and a related tax benefit of $4 million. The net impact of these three items was approximately ($0.02) per share on a diluted basis.

Cash generated from operations for the second quarter of fiscal 2007 was $153 million, and cash and marketable debt securities balance at the end of the quarter was $4.837 billion.

"Sun's financial performance this quarter demonstrates that our strategy and discipline are paying off," said Jonathan Schwartz, CEO of Sun Microsystems. "The steady increase in adoption of our key developer platforms, the outstanding performance of our systems group, coupled with yesterday's endorsement of Solaris by Intel and today's landmark investment by KKR Private Equity Investors, L.P., are all validation of our momentum, and key drivers behind our push towards sustained growth and profitability."

Sun has scheduled a conference call today to discuss its financial results for Q2 fiscal year 2007 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 ComputerTM" -- 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 onhttp://www.sun.com.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the statement regarding the key drivers behind our push towards sustained growth and profitability. 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 these projections and forward-looking statements include: risks associated with developing, designing, manufacturing and distributing new products; lack of success in technological advancements; pricing pressures; lack of customer acceptance of new products; the possibility of errors or defects in new products; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; the cancellation or delay of the alliance with Intel; our reliance on single-source suppliers; risks associated with our ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with our international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; our dependence on significant customers and specific industries; and our dependence on channel partners. 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, 2006 and its Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 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.

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 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.