SANTA CLARA, Calif. - January 24, 2006 - Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal second quarter, which ended December 25, 2005.

Revenues for the second quarter of fiscal 2006 were $3.337 billion, an increase of 17 percent as compared with $2.841 billion for the second quarter of fiscal 2005. The year over year revenue increase was driven by recent acquisitions. Total gross margin as a percent of revenues was 42.6 percent, an increase of 0.4 percentage points, as compared with the second quarter of fiscal 2005.

Net loss for the second quarter of fiscal 2006 on a GAAP basis was $223 million or a net loss of ($0.07) per share, as compared with net income of $4 million, or earnings per share of $0.00, for the second quarter of fiscal 2005.

GAAP net loss for the second quarter of fiscal 2006 includes: $145 million of purchase price accounting adjustments and intangible asset amortization relating to our recent acquisitions, $10 million of restructuring charges, $14 million of a gain on equity investments, and a $3 million benefit for related tax effects. The net impact of these four items is approximately ($0.04) cents per share. In addition, GAAP net loss also includes stock-based compensation charges relating to the implementation of SFAS 123R of $55 million.

Cash flow used in operations for the second quarter was $191 million and cash and marketable debt securities balance at the end of the quarter was $4.276 billion.

"The backlog is the highest in years and this increase in bookings and demand is driving improved business fundamentals," said Scott McNealy, chairman and CEO, Sun Microsystems. "The uptick in demand is due to the game changing technologies we've delivered to market over the last several quarters that are setting new standards for performance, price and efficiency. From our x64 Sun Fire servers and the Sun Fire T2000 server based on the CoolThreads T1 processor, to UltraSPARC IV+, to Solaris Operating System demand has clearly improved as a result of our investment in R&D."

Steve McGowan, Sun's chief financial officer and executive vice president, corporate resources, said, "we saw positive demand in bookings and backlog growth across numerous server and data management product areas. Our gross margin performance of 42.6 percent continued to be strong and we came directly in line with our operating expense guidance for the quarter. We continue to be pleased with the overall strength of our balance sheet including a cash and marketable debt securities balance of approximately $4.3 billion."

Sun has scheduled a conference call today to discuss its earnings for Q2 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 http://sun.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future results and performance of Sun Microsystems, Inc., including statements regarding an increase in bookings and demand driving improved business fundamentals. 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: increased competition; failure to rapidly and successfully develop and introduce new products; our reliance on single-source suppliers; risks associated with our international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; pricing pressures; our dependence on significant customers and specific industries; our dependence on channel partners; and failure to successfully integrate acquisition candidates. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 25, 2005. Sun assumes no obligation and does not intend to update these forward-looking statements.

Sun's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain charges, gains and tax effects that may not be indicative of our 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 our competitors' operating results. We include these non-GAAP financial measures because we believe 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, Sun Fire, Solaris, Cool Threads and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and in 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.