Sun Microsystems Reports Final Results for Full Fiscal Year and Fourth Quarter 2008 : Announces Additional $1 Billion Share Repurchase Authorization

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Sun Microsystems, Inc. (NASDAQ:JAVA) reported results today for its full fiscal year and fourth quarter, which ended June 30, 2008.

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The Network is the ComputerTM

For the full fiscal year, Sun reported revenues of $13.880 billion, an increase of 0.1 percent over fiscal year 2007. Revenues for the fourth quarter of fiscal 2008 were $3.780 billion, a decrease of 1.4 percent from $3.835 in the fourth quarter of fiscal 2007. Total gross margin as a percent of revenues for the full fiscal year was 46.5 percent, an increase of 1.3 percentage points over fiscal year 2007. Gross margin for the fourth quarter of fiscal 2008 was 44.3 percent, a decrease of 2.9 percentage points from the fourth quarter of fiscal 2007.

Net income on a GAAP basis for the full fiscal year was $403 million, or $0.49 per share on a diluted basis, as compared with net income of $473 million, or $0.52 per share on a diluted basis, for fiscal year 2007. Net income for the fourth quarter of fiscal 2008 was $88 million, or $0.11 per share on a diluted basis, as compared with net income of $329 million, or $0.36 per share on a diluted basis, for the fourth quarter of fiscal 2007.

Non-GAAP net income for the full fiscal year was $1.101 billion, or $1.34 per share on a diluted basis, as compared with non-GAAP net income of $1.003 billion, or $1.11 per share on a diluted basis, for fiscal year 2007. Non-GAAP net income for the fourth quarter of fiscal 2008 was $275 million, or $0.35 per share on a diluted basis, as compared with non-GAAP net income of $458 million, or $0.50 per share on a diluted basis, for the fourth quarter of fiscal 2007. Non-GAAP net income excludes purchased-in-process research and development, amortization of acquisition related intangibles, stock-based compensation, restructuring and related impairment of long-lived assets, net gain or loss on equity investments, settlement income and the tax effect of these non-GAAP adjustments.

Cash generated from operations for the full fiscal year was $1.3 billion, and the cash and marketable debt securities balance at the end of the year was approximately $3.3 billion.

"On a year-over-year basis, we saw significant improvements across a number of key operating metrics ranging from gross margins to non-GAAP earnings per share and cash flow from operations," said Jonathan Schwartz, CEO of Sun Microsystems. "Despite this progress and strong growth in international geographies, slowing performance in the U.S. impacted top line revenue growth. Looking forward, we remain confident in open source innovation as the accelerant to our growth strategy through increased adoption of our open source offerings – from the OpenSolarisTM operating system and the MySQLTM database to the LustreTM and ZFSTM storage systems, the foundation of our open storage platforms."

Full Fiscal Year & Fourth Quarter 2008 Highlights:

On an annual basis, Sun improved gross margins by 1.3 percentage points, decreased total R&D and SG&A expenses by $70 million, improved non-GAAP net income per share on a diluted basis by 21 percent and increased cash flow from operations by $371 million. Sun reported double-digit annual revenue growth in key international markets including Brazil, India, Russia and Greater China. Global demand for MySQL continued to accelerate, with billings growth in the fourth quarter of over 44 percent year-over-year. Sun's energy-efficient, SolarisTM-based Chip Multi-Threading (CMT) systems delivered 61 percent year-over-year billings growth in Q4, and for fiscal year 2008 was a $1.1 billion dollar business for Sun. ZFS, the foundation of Sun's Open Storage product line, saw increased adoption across the globe during the quarter, and along with the Sun FireTM x4500 server - the world's first hybrid server/storage data server - helped customers reduce costs through the use of open source software on industry standard systems. During the fourth quarter, Sun continued to leverage its cash position, spending $464 million to repurchase 35.7 million shares of its common stock. Currently, $36 million remains of the $3 billion share repurchase program announced in Sun's fourth quarter of fiscal 2007. Sun also announced today that its Board of Directors authorized an additional repurchase of up to $1 billion of the company's outstanding common shares. For more information about this share repurchase, please see the press release issued by Sun today which can be found at http://www.sun.com/investors.

Sun has scheduled a conference call today to discuss its financial results for the full fiscal year and fourth quarter 2008 at 5:00 a.m. (PT) / 8:00 a.m. (ET), which is being broadcast live at http://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 ComputerTM" -- 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.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding Sun's confidence in open source innovation as the accelerant to its growth strategy, the rate of adoption of Sun's open source offerings and the offerings constituting the foundation of Sun's open storage platforms. 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, December 30, 2007 and March 30, 2008. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

To supplement Sun's financial results presented in accordance with GAAP, Sun provides non-GAAP net income and non-GAAP net income per share 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 Sun's 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" following the text of this press release.

Sun, Sun Microsystems, the Sun logo, OpenSolaris, MySQL, Lustre, ZFS, Solaris, Sun Fire and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. or its subsidiaries in the United States and other countries.

SUN MICROSYSTEMS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(in millions, except per share amounts)         Three Months Ended Fiscal Years Ended June 30,2008 June 30,2007 June 30,2008 June 30,2007   Net revenues: Products $ 2,386 $ 2,492 $ 8,618 $ 8,771 Services   1,394   1,343   5,262   5,102 Total net revenues 3,780 3,835 13,880 13,873 Cost of sales: Cost of sales-products (1) 1,372 1,312 4,668 4,811 Cost of sales-services (1)   735   711   2,757   2,797 Total cost of sales   2,107   2,023   7,425   7,608 Gross margin 1,673 1,812 6,455 6,265 Operating expenses: Research and development (1) 468 514 1,834 2,008 Selling, general and administrative (1) 1,032 958 3,955 3,851 Restructuring charges and related impairment of long-lived assets 104 15 263 97 Purchased in-process research and development   6   -   31   - Total operating expenses   1,610   1,487   6,083   5,956 Operating income 63 325 372 309 Gain on equity investments, net 10 1 32 6 Interest and other income, net 16 59 161 214 Settlement income   45   -   45   54 Income before income taxes 134 385 610 583 Provision for income taxes   46   56   207   110 Net income $ 88 $ 329 $ 403 $ 473   Net income per common share-basic $ 0.11 $ 0.37 (2) $ 0.50 $ 0.54 (2) Net income per common share-diluted $ 0.11 $ 0.36 (2) $ 0.49 $ 0.52 (2) Shares used in the calculation of net income per common share-basic   772   889 (2)   809   883 (2) Shares used in the calculation of net income per common share-diluted   776   908 (2)   822   902 (2)   (1)

  Includes stock-based compensation expense as follows:

Cost of sales-products $ 4 $ 3 $ 12 $ 13 Cost of sales-services $ 10 $ 8 $ 38 $ 31 Research and development $ 20 $ 14 $ 67 $ 64 Selling, general and administrative $ 23 $ 23 $ 97 $ 106   (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)     June 30,2008  

June 30,2007 (1)

(unaudited)   ASSETS Current assets: Cash and cash equivalents $ 2,272 $ 3,620 Short-term marketable debt securities 429 962 Accounts receivable, net 3,019 2,964 Inventories 680 524 Deferred and prepaid tax assets 372 200 Prepaid expenses and other current assets, net   1,218   1,058 Total current assets 7,990 9,328   Property, plant and equipment, net 1,611 1,533 Long-term marketable debt securities 609 1,360 Goodwill 3,215 2,514 Other acquisition-related intangible assets, net 566 633 Other non-current assets, net   477   470 $ 14,468 $ 15,838 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,387 $ 1,381 Accrued payroll-related liabilities 734 842 Accrued liabilities and other 1,105 961 Deferred revenues 2,236 2,047 Warranty reserve   206   220 Total current liabilities 5,668 5,451   Long-term debt 1,265 1,264 Long-term deferred revenues 683 659 Other non-current obligations 1,264 1,285 Total stockholders' equity   5,588   7,179 $ 14,468 $ 15,838   (1) Derived from audited financial statements.   SUN MICROSYSTEMS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, in millions)     Fiscal Years Ended June 30,2008   June 30,2007     Cash flows from operating activities: Net income $ 403 $ 473 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 476 517 Amortization of acquisition-related intangible assets 310 313 Stock-based compensation expense 214 214 Purchased in-process research and development 31 - Gain on investments and other, net (68) (42) Impairment of long-lived assets - 16 Tax provisions for employee stock plans - 29 Deferred taxes 2 74 Changes in operating assets and liabilities: Accounts receivable, net (9) (241) Inventories (148) (6) Prepaid and other assets, net (295) (191) Accounts payable (15) (8) Other liabilities   428   (190) Net cash provided by operating activities   1,329   958 Cash flows from investing activities: Decrease (increase) in restricted cash 17 (5) Purchases of marketable debt securities (1,333) (3,088) Proceeds from sales of marketable debt securities 1,550 1,335 Proceeds from maturities of marketable debt securities 1,058 725 Proceeds from sales of equity investments, net 32 16 Purchases of property, plant and equipment, net (520) (488) Proceeds from sales of property, plant and equipment 79 451 Payments for acquisitions, net of cash acquired   (949)   (23) Net cash used in investing activities   (66)   (1,077) 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 (2,764) (200) Proceeds from issuance of options and ESPP purchases, net 177 244 Proceeds from issuance of convertible notes, net - 692 Principal payments on borrowings and other obligations   (24)   (483) Net cash (used in) provided by financing activities   (2,611)   170 Net decrease in cash and cash equivalents (1,348) 51 Cash and cash equivalents, beginning of period   3,620   3,569 Cash and cash equivalents, end of period $ 2,272 $ 3,620   SUN MICROSYSTEMS, INC.CALCULATION OF NON-GAAP NET INCOME(unaudited)(in millions, except per share amounts)         Three Months Ended Fiscal Years Ended June 30,2008 June 30,2007 June 30,2008 June 30,2007   Calculation of non-GAAP net income: GAAP net income $ 88 $ 329 $ 403 $ 473 Purchased in-process research and development 6 - 31 - Amortization of acquisition related intangibles 86 74 310 313 Stock-based compensation 57 48 214 214 Restructuring and related impairment of long-lived assets 104 15 263 97 Gain on equity investments, net (10 ) (1 ) (32 ) (6 ) Settlement income (45 ) - (45 ) (54 ) Tax effect of non-GAAP adjustments   (11 )   (7 )   (43 )   (34 ) Non-GAAP net income $ 275   $ 458   $ 1,101   $ 1,003   Diluted non-GAAP net income per share $ 0.35   $ 0.50   $ 1.34   $ 1.11     Shares used in the calculation of non-GAAP net income per common share – diluted   776     908     822     902  

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