Sun Microsystems Reports All Time Record Quarterly and Annual Results. Fourth Quarter Net Income Grew 37% on Revenue Growth of 22% - Company Financial Information

Edge: Work-Group Computing Report, August 2, 1999

Sun Microsystems, Inc., (Nasdaq: SUNW) has reported results for the fourth quarter which ended June 30, 1999. Revenues for the fourth quarter were a record $3.515 billion, up 22 percent compared with the fourth quarter of fiscal 1998. Net income for the fourth quarter reached an all time high of $395 million, compared with last year's net income of $288 million (excluding a charge related to an acquisition), up 37%. Fourth quarter earnings per share was $.48, compared with the previous year's earnings per share of $.37 (excluding the charge related to an acquisition), an increase of 30 percent. Including the charge related to an acquisition, net income and earnings per share for the fourth quarter of fiscal year 1998 were reported as $273 million and $.35, respectively.

For the full 1999 fiscal year, Sun reported revenues of $11.726 billion, up 20 percent over the prior year. Net income for the fiscal year was $1.157 billion, up 28 percent over the prior year (excluding acquisition-related charges for fiscal years 1998 and 1999). Earnings per share for the year was $1.42, an increase of 23 percent from the previous year's results (excluding acquisition-related charges for fiscal years 1998 and 1999). Including acquisition-related charges, net income and earnings per share for the fiscal year 1999 were $1.031 billion and $1.27, respectively.

All earnings per share amounts represent diluted earnings per share as defined within Statement of Financial Accounting Standards No. 128.

"We had a terrific fourth quarter; our team really delivered. We continue to gain market share versus our competitors as we achieved record revenue and net income levels in both the fourth quarter and fiscal year 1999. Sun's success has come as a direct result of our relentless focus on network computing," said Chief Executive Officer Scott McNealy.

McNealy added, "For some time now, we have been saying we are the dot in

.com, meaning everything we do is explicitly aimed at providing the products, technologies and services for companies to harness the power of the Internet and transform their business to an online services driven model. We offer everything from core technologies like Java(TM), Jini(TM) and Jiro(TM), to the performance and reliability of the SPARC(TM) microprocessor and Solaris(TM) operating environment, which power our systems and storage products. Our Enterprise services continue to grow as we provide customers the expertise to architect, design and maintain the

.com business."

McNealy concluded, "We've based our solutions on open interfaces and industry standardsan approach that encourages innovation throughout the industry and gives customers greater flexibility and choice. Our customers seem to agree-they've made Sun one of the world's top providers of network computing solutions."

Michael E. Lehman, Sun's Vice President of Corporate Resources and Chief Financial Officer, commented, "Sun continues to experience momentum in the market place, as evidenced by our record shipments during the quarter as well as the tremendous growth we are seeing in newer markets such as e-commerce and service providers."

Lehman continued, "We achieved record levels of operating income and cash generated from operating activities, for both the quarter and the year. We also surpassed the $1 billion mark in annual net income for the first time. Our balance sheet remains stronger than ever, with approximately $2.7 billion in cash and improvements in all of our traditional balance sheet metrics."

Lehman concluded, "Our continued investments in research and development, combined with further investments in our field sales, service and support organizations, should enable Sun to further capitalize on the market opportunities ahead of us."

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 hardware, software and services for establishing enterprise-wide intranets and expanding the power of the Internet. With more than $11.5 billion in annual revenues, Sun can be found in more than 150 countries and on the WorldWide Web at http://www.sun.com.

                    SUN MICROSYSTEMS, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF INCOME
           (In thousands, except per share amounts)

                          Three Months Ended     Fiscal Year Ended
                             (unaudited)
                         June 30,   June 30,    June 30,  June 30,
                             1999       1998         1999      1998
Net revenues           $3,514,645 $2,881,065 $11,726,297 $9,790,840

Costs and expenses:
  Cost of sales         1,688,289  1,392,636   5,648,360  4,693,336
Research and development  352,611    279,166   1,262,517  1,013,782
Selling, general
 and administrative       909,912    792,715   3,172,955  2,777,264
In-process research
 and development                0     14,100     120,700    176,384
  Total costs
   and expenses         2,950,812  2,478,617  10,204,532  8,660,766
Operating income          563,833    402,448   1,521,765  1,130,074
Interest income, net       25,908     12,958      83,924     46,092
Income before income taxes589,741    415,406   1,605,689  1,176,166
Provision for income taxes194,571    142,418     574,355    413,304
Net income               $395,170   $272,988  $1,031,334   $762,862
Net income per
 common share - basic       $0.51      $0.36       $1.35      $1.02
Net income per common
 share - diluted            $0.48      $0.35       $1.27      $0.97
Shares used in the
 calculation of net
 income per share - basic 773,900    748,898     765,853    747,456
Shares used in the
 calculation of net
 income per share -
  diluted                 827,695    788,256     814,241    788,548

                  SUN MICROSYSTEMS, INC.
  PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
          EXCLUDING ACQUISITION-RELATED CHARGES
         (In thousands, except per share amounts)

                          Three Months Ended     Fiscal Year Ended
                             (unaudited)            (unaudited)
                         June 30,   June 30,    June 30,  June 30,
                           1999        1998       1999       1998
Net revenues           $3,514,645 $2,881,065 $11,726,297 $9,790,840
Costs and expenses:
  Cost of sales         1,688,289  1,392,636   5,648,360  4,693,336
Research and development  352,611    279,166   1,262,517  1,013,782
Selling, general
 and administrative       909,912    792,715   3,172,955  2,777,264
  Total costs
and expenses            2,950,812  2,464,517  10,083,832  8,484,382
Operating income          563,833    416,548   1,642,465  1,306,458
Interest income, net       25,908     12,958      83,924     46,092
Income before income taxes589,741    429,506   1,726,389  1,352,550
Provision for income taxes194,571    141,737     569,664    446,333
Net income               $395,170   $287,769  $1,156,725   $906,217
Net income per common
 share - basic              $0.51      $0.38       $1.51      $1.21
Net income per common
 share - diluted            $0.48      $0.37       $1.42      $1.15
Shares used in the
 calculation of net
 income per share - basic   773,900  748,898     765,853    747,456

Shares used in the
  calculation of net
income per share - diluted827,695    788,256     814,241    788,548

Notes:  The above pro forma amounts have been adjusted to eliminate
acquisition-related charges of $14.1 million, $120.7 million, and
$176.4 million for in-process R&D and the related income tax
effects for the three months ended June 30, 1998, and the twelve
months ended June 30, 1999 and 1998, respectively.

                    SUN MICROSYSTEMS, INC.
            CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands)

                                             June 30,     June 30,
                                                1999         1998
ASSETS
Current assets:
  Cash, cash equivalents and short-term
  investments                              $2,665,051   $1,298,452
  Accounts receivable, net                  2,286,911    1,845,765
  Inventories                                 307,873      346,446
  Other current assets                        856,515      656,862
Total current assets                        6,116,350    4,147,525
Property, plant and equipment, net          1,608,921    1,300,612
Other assets, net                             695,081      262,925
                                           $8,420,352   $5,711,062

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings                        $1,646       $7,169
  Accounts payable                            753,838      495,603
  Accrued liabilities                       1,646,565    1,166,491
  Income taxes payable                        402,813      188,641
  Other current liabilities                   422,115      264,967
Total current liabilities                   3,226,977    2,122,871
Long-term debt and other obligations          381,595       74,563
Stockholders' equity                        4,811,780    3,513,628
                                           $8,420,352   $5,711,062