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Q3 FY 2008 Earnings Press Release

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Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows


Sun Microsystems Reports Third Quarter Fiscal Year 2008 Results

SANTA CLARA, Calif. - May 1, 2008 - Sun Microsystems, Inc. (NASDAQ: JAVA) reported results today for its fiscal third quarter, which ended March 30, 2008.

Revenues for the third quarter of fiscal 2008 were $3.266 billion, a decrease of 0.5 percent as compared with $3.283 billion for the third quarter of fiscal 2007. Total gross margin as a percent of revenues was 44.9, an increase of 0.4 percentage points, as compared with the third quarter of fiscal 2007.

Net loss for the third quarter of fiscal 2008 on a GAAP basis was $34 million, or ($0.04) per share, as compared with net income of $67 million, or $0.07 per share, for the third quarter of fiscal 2007. In the third quarter of fiscal 2008, the company recorded a $52 million dollar tax provision, as compared to a tax benefit of $3 million in the third quarter of fiscal 2007. Net loss for the third quarter included charges related to the acquisition of MySQL, which reduced earnings per share by approximately $0.04.

Cash generated from operations for the third quarter of fiscal 2008 was $329 million, and the cash and marketable debt securities balance at the end of the quarter was $3.801 billion. During the third quarter, Sun continued to leverage its cash position, spending $300 million to repurchase 17.5 million shares of its common stock. There is currently $500 million remaining of the $3 billion share repurchase program announced in the company's fiscal fourth quarter of 2007.

"The U.S. economy presented Sun with significant challenges in the third quarter, masking our progress in developing nations and economies across the world," said Jonathan Schwartz, CEO of Sun Microsystems. "With double digit year-over-year growth in India and Brazil, and triple digit billings year-over-year growth in our energy efficient, Solaris-based Chip Multi-Threading (CMT) systems, Sun made considerable progress during the quarter. We continue to invest in the future created by open alternatives to proprietary technologies, best exemplified by the acquisition of MySQL. The world is moving to open source innovation, and Sun continues to lead that revolution"

Third Quarter Highlights

  • Sun reported year-over-year revenue growth in 12 out of its 16 sales geographies during the third quarter, with double-digit revenue growth in key international markets across EMEA, Asia Pacific and the International Americas.
  • From a product perspective, Solaris based Chip Multi-Threading (CMT) systems billings more than doubled year-over-year, with the Company's blade systems also delivering impressive billings growth fueled by Sun's comprehensive portfolio spanning AMD Opteron, Intel Xeon and Sun UltraSPARC offerings.
  • Furthering its presence in the open source software marketplace, Sun announced the close of two significant acquisitions: MySQL, the world's most popular open source database provider, and innotek, whose VirtualBox products provide free desktop virtualization.
  • Sun signed a landmark collaboration agreement with The People's Republic of China Ministry of Education to cultivate integrated circuit engineering talent and industry development based upon Sun's OpenSPARC open source silicon platform.
  • Sun was awarded significant contracts including funding from the Defense Advanced Research Projects Agency (DARPA) for a five and a half year research project focused on microchip interconnectivity via on-chip optical networks enabled by silicon photonics and proximity communication.

Sun has scheduled a conference call today to discuss its financial results for the third quarter fiscal year 2008 at 1:30 p.m. (PT), which is being broadcast live at www.sun.com/investors.

About Sun Microsystems, Inc.

Sun Microsystems develops the technologies that power the global marketplace. Guided by a singular vision -- "The Network is the Computer" -- Sun drives network participation through shared innovation, community development and open source leadership. Sun can be found in more than 100 countries and on the Web at http://sun.com

Sun, Sun Microsystems, the Sun logo, Solaris, Sun Fire, Java, innotek, VirtualBox, MySQL and The Network is the Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and other countries.

AMD and Opteron are trademarks or registered trademarks of Advanced Micro Devices.

Intel and Intel Xeon are trademarks or registered trademarks of Intel Corporation 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 United States and other countries. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc.

UNIX is a registered trademark in the United States and other countries, exclusively licensed through X/Open Company, Ltd.

Billings represents amounts invoiced to customers in a period.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding future investments and industry trends. 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 Sun's actual results to differ materially from those contained in such 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 and implementation of new products and technologies; the possibility of errors or defects in new products; a material acquisition, restructuring or other event that results in significant charges; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; Sun's 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 Sun's international customers and operations; delays in product development; Sun's dependence on significant customers and specific industries; and Sun's 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, 2007 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 2007 and December 30, 2007. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

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

For More Information
Investor Contact
Press Contact
Industry Analyst Contact
Ron Pasek
650-786-8008
ron.pasek@sun.com
Kristi Rawlinson
650-786-6933
kristi.rawlinson@sun.com
Melissa Selcher
650-787-1807
melissa.selcher@sun.com

Sun Microsystems, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(in millions, except per share amounts)

  Three Months Ended Nine Months Ended
March 30, 2008 April 1, 2007 March 30, 2008 April 1, 2007
Net revenues:
    Products $2,003 $2,060 $6,232 $6,279
    Services 1,263 1,223 3,868 3,759
      Total net revenues 3,266 3,283 10,100 10,038
Cost of sales:
    Cost of sales-products (1) 1,106 1,148 3,296 3,499
    Cost of sales-services (1) 692 674 2,022 2,086
      Total cost of sales 1,798 1,822 5,318 5,585
        Gross margin 1,468 1,461 4,782 4,453
Operating expenses:
    Research and development (1) 457 514 1,366 1,494
    Selling, general and administrative (1) 989 957 2,923 2,893
    Restructuring charges and related impairment of long-lived assets 14 35 159 82
    Purchased in-process research and development 24 - 25 -
      Total operating expenses 1,484 1,506 4,473 4,469
        Operating income (loss) (16) (45) 309 (16)
Gain on equity investments, net - 5 22 5
Interest and other income, net 34 104 145 209
Income before income taxes 18 64 476 198
Provision (benefit) for income taxes 52 (3) 161 54
Net income (loss) $(34) $67 $315 $144
Net income (loss) per common share-basic $(0.04) $0.08(2) $0.38 $0.16(2)
Net income (loss) per common share-diluted $(0.04) $0.07(2) $0.38 $0.16(2)
Shares used in the calculation of net income (loss) per common share-basic 785 887(2) 821 881(2)
Shares used in the calculation of net income (loss) per common share-diluted 785 915(2) 837 900(2)

(1) Includes stock-based compensation expense as follows:
Cost of sales-products $3 $3 $8 $10
Cost of sales-services $10 $8 $28 $24
Research and development $17 $15 $47 $49
Selling, general and administrative $27 $24 $74 $83

(2) Amounts have been restated to reflect the one-for-four reverse stock split effective November 12, 2007.

Sun Microsystems, Inc.
Condensed Consolidated Balance Sheets
(in millions)

  March 30, 2008
(unaudited) 		June 30, 2007(1)
Assets
Current Assets:
   Cash and cash equivalents $2,363 $3,620
   Short-term marketable debt securities 664 962
   Accounts receivable, net 2,405 2,964
   Inventories 735 524
   Deferred and prepaid tax assets 223 200
   Prepaid expenses and other current assets 1,106 1,058
     Total current assets 7,496 9,328
Property, plant and equipment, net 1,584 1,533
Long-term marketable debt securities 774 1,360
Goodwill 3,288 2,514
Other acquisition-related intangible assets, net 611 633
Other non-current assets 509 470
  $14,262 $15,838
Liabilities and stockholders' equity
Current liabilities:
   Accounts payable 1,306 1,381
   Accrued payroll-related liabilities 724 842
   Accrued liabilities and other 1,128 961
   Deferred revenues 1,979 2,047
   Warranty reserve 204 220
     Total current liabilities 5,341 5,451
Long-term debt 1,275 1,264
Long-term deferred revenues 627 659
Other non-current obligations 1,229 1,285
Total stockholders' equity 5,790 7,179
  $14,262 $15,838

(1) Derived from audited financial statements.

Sun Microsystems, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)

  Nine Months Ended
March 30, 2008 April 1, 2007
Cash flows from operating activities:
Net income:
 $315 $144
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 353 388
Amortization of acquisition related intangible assets
 225 239
Deferred taxes
 8 (20)
Impairment of long-lived assets
 - 16
Gain on investments and other, net
 (54) -
Stock-based compensation expense
 157 166
Purchased in-process research and development
 25 -
Changes in operating assets and liabilities:
Accounts receivable, net
 603 265
Inventories
 (205) (51)
Prepaid and other assets
 (105) (104)
Accounts payable
 (114) (222)
Other liabilities
 31 (427)
 
Net cash provided by operating activities
 
 
1,239
 
 
394
 
Cash flows from investing activities:
Decrease (increase) in restricted cash, net
 22 (4)
Purchases of marketable debt securities
 (1,292) (2,465)
Proceeds from sales of marketable debt securities
 1,404 1,041
Proceeds from maturities of marketable debt securities
 764 523
Proceeds from sales of equity investments, net
 25 8
Purchases of property, plant and equipment, net
 (297) (73)
Payments for acquisitions, net of cash acquired
 (923) (10)
 
Net cash used in investing activities
 
 
(297)
 
 
(980)
 
Cash flows from financing activities:
Purchase of common stock call options
 - (228)
Sale of common stock warrants
 - 145
Purchase of common stock under 2007 Stock Repurchase Plan
 (2,300) -
Proceeds from the exercise of common stock options, net
 121 176
Proceeds from issuance of convertible notes, net
 - 692
Principal payments on borrowings and other obligations
 (20) (476)
 
Net cash (used in) provided by financing activities
 
 
(2,199)
 
 
309
 
Net decrease in cash and cash equivalents
 (1,257) (277)
Cash and cash equivalents, beginning of period
 3,620 3,569
 
Cash and cash equivalents, end of period
 
 
$2,363
 
 
$3,292
 
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