Q1 FY 2009 Earnings Press Release

Sun Microsystems Reports Final Results for the First Quarter Fiscal Year 2009

SANTA CLARA, Calif. - October 30, 2008 - Sun Microsystems, Inc. (NASDAQ: JAVA) reported results today for its first quarter of fiscal 2009, which ended September 28, 2008.

Revenues for the first quarter of fiscal 2009 were $2.990 billion, a decrease of 7.1 percent as compared with $3.219 billion for the first quarter of fiscal 2008. Total gross margin as a percent of revenues was 40.2, a decrease of 8.3 percentage points, as compared with the first quarter of fiscal 2008.

Net loss for the first quarter of fiscal 2009 on a GAAP basis was $1.677 billion, or $(2.24) per share on a diluted basis, as compared with a net income of $89 million, or $0.10 per share, for the first quarter of fiscal 2008. GAAP net loss per share includes a $1.445 billion non-cash charge for goodwill impairment. It also includes a restructuring charge of approximately $63 million pursuant to the restructuring that commenced in the fourth quarter of fiscal 2008.

On a non-GAAP basis, net loss for the first quarter of fiscal 2009 was $65 million, or $(0.09) per share on a diluted basis, as compared with a non-GAAP net income of $285 million, or $0.32 per share, for the first quarter of fiscal 2008. Non-GAAP net loss per share excludes amortization of acquisition-related intangibles, stock-based compensation, restructuring and related impairment of long-lived assets, the goodwill impairment charge, net gain on equity investments and the tax effect of these non-GAAP adjustments.

Sun ended the quarter with a cash and marketable debt securities balance of $3.121 billion and generated cash flow from operations for the first quarter of fiscal 2009 of $148 million.

"Although we saw another quarter of growth in our Solaris-based Chip Multi-Threading and Open Storage systems, the economic downturn continued to weigh on our customers, especially those that contribute to our traditional high-end businesses," said Jonathan Schwartz, CEO of Sun Microsystems. "With a continued focus on operational alignment, a strong cash position, and the market increasingly looking to open source innovation as a vehicle to escape proprietary vendor pricing, we believe Sun is well positioned to weather the downturn and ultimately become the biggest beneficiary in the open source revolution in both systems and software."

First Quarter Highlights

• Sun reported 83 percent year-over-year billings growth in its Solaris-based Chip Multi-Threading systems as customers continued to demand the nearly 10,000 applications available for Solaris 10, while enjoying integrated virtualization and exceptional power efficiency.
• Sun's Solaris-based Open Storage product line continued to see aggressive growth during the quarter as the adoption of ZFS - the most advanced file system available in the open source community - and open systems continue to be ever more critical for addressing customer pain points in today's challenging economic environment.
• Sun reported 12 percent year-over-year revenue growth in the Emerging Markets region, with India, Latin America and a combined Russia, Middle East and Africa geography growing double digits year-over-year.
• Sun announced a new version of Sun xVM VirtualBox as well as xVM VirtualBox Software Enterprise Subscription, offering 24/7 premium support for enterprise users. Sun xVM VirtualBox also surpassed 6.5 million downloads worldwide and 15,000 downloads per day.
• Sun partnered with Fujitsu on a new enhanced line of SPARC Enterprise servers that deliver a virtualization and consolidation platform with up to 80 percent better performance on commercial applications and 2x better performance on HPC workloads and using 44 percent less energy per core.

Sun will host a conference call today to review the complete financial results beginning at 1:30 p.m. PT / 4:30 p.m. ET. The general public can access the financial results and listen to the call via Sun's Investor Relations website at www.sun.com/investors.

Goodwill Impairment Analysis
Based on a combination of factors, including the current economic environment, Sun's operating results, and a sustained decline in Sun's market capitalization, the Company concluded that there were sufficient indicators to require Sun to perform an interim goodwill impairment analysis as of September 28, 2008. Sun has not yet completed this analysis. The Company has concluded, however, that an impairment loss can be reasonably estimated. Accordingly, the Company has recorded a $1.445 billion non-cash goodwill impairment charge during the first quarter of fiscal 2009. The Company expects to finalize its goodwill impairment analysis during the second quarter of fiscal 2009, and may make an adjustment to that charge or record an additional non-cash goodwill impairment charge when the goodwill impairment test is completed.

Safe Harbor
This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding the estimated goodwill impairment loss, Sun's expectations regarding the completion of the goodwill impairment analysis, the market's increasing look to open source innovation, Sun's ability to weather the economic downturn and Sun becoming the biggest beneficiary in the open source revolution in both systems and software. 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: changes in estimates or judgments related to the goodwill impairment analysis; competition; pricing pressures; the complexity of Sun's products and the importance of rapidly and successfully developing and introducing new products; Sun's dependence on significant customers, specific industries and geographies; delays in product development or customer acceptance and implementation of new products and technologies; Sun's ability to implement a new enterprise resource planning system; a material acquisition, restructuring or other event that results in significant charges; failure to successfully integrate acquired companies; 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 the quality of Sun's products; risks associated with international customers and operations; Sun's dependence on channel partners; failure to retain key employees; and risks associated with Sun's ability to achieve expected cost reductions within expected time frames. 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, 2008. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

To supplement Sun's preliminary financial results presented in accordance with GAAP, Sun provides non-GAAP net loss and non-GAAP net loss per share data on a diluted basis. The presentation of these non-GAAP financial measures should be considered in addition to Sun's GAAP results and are 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 gains, losses and charges 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 "Calculation of Non-GAAP Net Income (Loss)" following the text of this press release.

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