SYSTEMS

Sun Microsystems reported results 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 IV+ processor-based Sun Fire servers, clearing the 3,000,000 license mark with Solaris 10 Operating System (OS), a 55% sequential increase in Sun Java Enterprise System subscribers, and our Opteron processor-based Sun Fire server business growing units 109% and our midrange storage arrays, led by the Sun StorEdge 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 from the closing dates 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.