SANTA CLARA, Calif., Nov. 1 /PRNewswire-FirstCall/ -- Sun Microsystems, Inc., reported results today for its fiscal first quarter, which ended September 25, 2005, the Company's first period that included results of operations from SeeBeyond Technology Corporation, which Sun acquired on August 25, 2005, and Storage Technology Corporation, which Sun acquired on August 31, 2005.

Revenues for the first quarter of fiscal 2006 were $2.726 billion, an increase of 3.7 percent as compared with $2.628 billion for the first quarter of fiscal 2005. Total gross margin as a percent of revenues was 44.1 percent, an increase of 3.3 percentage points, as compared with the first quarter of fiscal 2005.

Net loss for the first quarter of fiscal 2006 on a GAAP basis, which included $50 million with respect to stock based compensation related to the implementation of SFAS 123R in the quarter, was $123 million or a net loss of $0.04 per share, as compared with a net loss of $133 million, or a net loss of $0.04 per share, for the first quarter of fiscal 2005.

GAAP net loss for the first quarter of fiscal 2006 included a $60 million acquisitions-related charge for purchased in-process research and development costs, a $12 million charge for workforce and real estate restructuring, a $13 million gain on equity investments, and a $4 million benefit for related tax effects. Excluding these charges, gain and tax effects, non-GAAP net loss was $68 million or $0.02 per share. For comparability, if we exclude the stock based compensation charge relating to the implementation of SFAS 123R of $50 million, our non-GAAP net loss was $18 million or a loss of $0.01 per share.

Cash flow from operations for the first quarter was $224 million and cash and marketable debt securities balance at the end of the quarter was $4.533 billion.

Steve McGowan, Sun's chief financial officer and executive vice president, corporate resources, said, "In addition to closing two significant acquisitions during the quarter, we continued to build upon 16 consecutive years of generating positive cash flow from operations. We are very pleased with the strength of our balance sheet at quarter end that includes a cash position of over $4.5 billion and an increase in deferred revenues. "

"With the acquisitions of StorageTek and SeeBeyond this quarter, revenue grew and customers are responding very positively," said Scott McNealy, chairman and CEO, Sun Microsystems. "We're seeing momentum, with the doubling of price/performance for our UltraSPARC(R) IV+ processor-based Sun Fire(TM) servers, clearing the 3,000,000 license mark with Solaris(TM) 10 Operating System (OS), a 55% sequential increase in Sun Java(TM) Enterprise System subscribers, and our Opteron(TM) processor-based Sun Fire server business growing units 109% and our midrange storage arrays, led by the Sun StorEdge(TM) 6920, growing revenue 15% year over year. We are confident in our product strategy, and as momentum behind our execution builds, we are beginning to fire on all cylinders."

The Q1 fiscal 2006 results included $226 million in revenue, $99 million in gross margin, $17 million in research and development expense and $87 million in selling, general and administrative expense related to the operations of StorageTek and SeeBeyond following the respective closing dates of these acquisitions and reflect the impact of preliminary purchase price allocations and adjustments. We have estimated the fair value of certain tangible and intangible assets acquired and liabilities assumed in our preliminary allocation of purchase price. As permitted under GAAP, and for up to twelve months from the date of acquisition, some of these estimates may be subject to adjustment as we finalize the purchase price allocation.

Sun has scheduled a conference call today to discuss its earnings for Q1 fiscal year 2006 at 1:30 p.m. (PT), which is being broadcast live at http://www.sun.com/investors.

About Sun Microsystems, Inc.

Since its inception in 1982, a singular vision -- "The Network Is The Computer(TM)" -- has propelled Sun Microsystems, Inc. to its position as a leading provider of industrial-strength hardware, software and services that make the Net work. Sun can be found in more than 100 countries and on the World Wide Web at http://www.sun.com/ .

INVESTOR CONTACT: Barry Plaga 626-408-3100 barry.plaga@sun.com MEDIA CONTACT: Stephanie Vonallmen 650-786-8589 stephanie.vonallmen@sun.com INDUSTRY ANALYST CONTACT: Joanne Masters 650-786-0847 joanne.masters@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 our expectations with respect to our customers' response to the StorageTek and SeeBeyond acquisitions, Sun's momentum and Sun beginning to fire on all cylinders. 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. Sun assumes no obligation and does not 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 our 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 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 in this press release 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.

NOTE: Sun, Sun Microsystems, the Sun logo, Sun Fire, Solaris, Java, Sun StorEdge 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. Opteron is a trademark or registered trademark of Advanced Micro Devices, Inc.

SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in millions, except per share amounts) Three Months Ended Sept. 25, Sept. 26, 2005 2004 Net revenues: Products $1,704 $1,676 Services 1,022 952 Total net revenues 2,726 2,628 Cost of sales: Cost of sales-products (including stock-based compensation expense of $2(1)) 966 1,004 Cost of sales-services (including stock-based compensation expense of $7(1)) 558 551 Total cost of sales 1,524 1,555 Gross margin 1,202 1,073 Operating expenses: Research and development (including stock-based compensation expense of $17(1)) 439 416 Selling, general and administrative (including stock-based compensation expense of $24(1)) 828 670 Restructuring charges 12 108 Purchased in-process research and development 60 -- Total operating expenses 1,339 1,194 Operating loss (137) (121) Gain (loss) on equity investments, net 13 (4) Interest and other income, net 44 31 Loss before income taxes (80) (94) Provision for income taxes 43 39 Net loss $(123) $(133) Net income loss per common share- basic and diluted $(0.04) $(0.04) Shares used in the calculation of net income loss per common share-basic and diluted 3,407 3,343 (1) For the three months ended September 25, 2005 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions) September 25, June 30, 2005 2005* (unaudited) ASSETS Current assets: Cash and cash equivalents $1,508 $2,051 Short-term marketable debt securities 993 1,345 Accounts receivable, net 2,087 2,231 Inventories 551 431 Deferred and prepaid tax assets 285 255 Prepaid expenses and other current assets 713 878 Total current assets 6,137 7,191 Property, plant and equipment, net 1,901 1,769 Long-term marketable debt securities 2,032 4,128 Goodwill 2,466 441 Other acquisition-related intangible assets, net 1,288 113 Other non-current assets, net 650 548 $14,474 $14,190 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and short-term borrowings $512 $-- Accounts payable 1,091 1,167 Accrued payroll-related liabilities 836 713 Accrued liabilities and other 1,060 1,014 Deferred revenues 1,507 1,648 Warranty reserve 251 224 Total current liabilities 5,257 4,766 Long-term debt 603 1,123 Long-term deferred revenues 549 544 Other non-current obligations 1,410 1,083 Total stockholders' equity 6,655 6,674 $14,474 $14,190 * Derived from audited financial statements SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in millions) Three Months Ended

September 25, September 26,

2005 2004 Cash flows from operating activities: Net loss $(123) $(133) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 143 164 Amortization of other intangible assets 46 18 Stock-based compensation expense 50 5 Purchased in-process research and development 60 -- Loss (gain) on investments, net (13) 4 Changes in operating assets and liabilities: Accounts receivable, net 449 606 Inventories 67 47 Prepaid and other assets Accounts payable (174) (252) Other liabilities (484) (366) Net cash provided by operating activities 224 124 Cash flows from investing activities: Purchases of marketable debt securities (454) (1,377) Proceeds from sales of marketable debt securities 2,818 1,310 Proceeds from maturities of marketable debt securities 75 292 Proceeds from sales of equity investments, net 9 -- Purchases of property, plant and equipment, net (48) (56) Purchases of spare parts and other assets (20) (12) Payments for acquisitions, net of cash acquired (3,150) -- Net cash provided by (used in) investing activities (770) 157 Cash flows from financing activities: Proceeds from issuance of common stock, net 3 15 Principal payments on borrowings and other obligations -- (250) Net cash provided by (used in) financing activities 3 (235) Net increase (decrease) in cash and cash equivalents (543) 46 Cash and cash equivalents, beginning of period 2,051 2,141 Cash and cash equivalents, end of period $1,508 $2,187 SUN MICROSYSTEMS, INC. NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS (unaudited) (in millions, except per share amounts) Three Months Ended Sept. 25, Sept. 26, 2005 2004 Calculation of net income (loss) excluding special items: Net loss** $(123) $(133) Restructuring charges 12 108 Purchased in-process research and development 60 -- Loss (gain) on equity investments, net (13) 4 Settlement of litigation* -- 55 Related tax effects (4) (7) Net income (loss) excluding special items $(68) $27 Net income (loss) excluding special items per common share - basic $(0.02) $0.01 Net income (loss) excluding special items per common share - diluted $(0.02) $0.01 Shares used in the calculation of net income (loss) excluding special items per common share - basic 3,407 3,343 Shares used in the calculation of net income (loss) excluding special items per common share - diluted 3,407 3,356 * Included in Cost of sales - products ** Net loss for the quarter ended September 25, 2005 included $50 million of stock-based compensation expense or approximately $0.01 per share.

CONTACT: investors, Barry Plaga, +1-626-408-3100, or
barry.plaga@sun.com, or media, Stephanie Vonallmen, +1-650-786-8589, or
stephanie.vonallmen@sun.com, or industry analyst contact, Joanne Masters,
+1-650-786-0847, or joanne.masters@sun.com, all of Sun Microsystems, Inc.

Web site: http://www.sun.com/