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Sun Microsystems Reports Preliminary Profit; Revenu and Server Unit Growth in Fiscal Fourth Quarter

SANTA CLARA, Calif.
July 20, 2004

Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal fourth quarter and full fiscal year, which ended June 30, 2004.

Revenues for the fourth quarter grew to $3.110 billion, an increase of 4.3 percent as compared with $2.982 billion for the fourth quarter of fiscal 2003. Total gross margin as a percent of revenues was 39.4 percent, a decrease of 4.3 percentage points as compared with the fourth quarter of fiscal 2003. Net income for the fourth quarter of fiscal 2004 was $795 million or $0.24 per share as compared with a net loss of $1.039 billion or a net loss of $0.32 per share for the fourth quarter of fiscal 2003.

Cash generated from operating activities was $2.172 billion for the quarter, and the balance of cash and marketable securities was $7.608 billion.

For the full 2004 fiscal year, Sun reported revenues of $11.185 billion, a decline of 2.2 percent as compared with $11.434 billion for the full 2003 fiscal year. Total gross margin as a percent of revenues was 40.4 percent, a decline of 2.8 percentage points as compared with the 2003 fiscal year. The net loss for fiscal year 2004 was $376 million or a net loss of $0.11 per share as compared with a net loss of $3.429 billion or a net loss of $1.07 per share for the 2003 fiscal year.

Results reported today include $1.6 billion of other income, and $350 million in deferred other income related to the Microsoft settlement. Sun has sought confirmation of certain aspects of its accounting relating to this settlement from the Securities and Exchange Commission. Financial results are pending final resolution of these matters.

Steve McGowan, Sun’s chief financial officer and executive vice president, corporate resources, said, “We’re pleased we grew revenue in fiscal Q4 based on consistent demand throughout the quarter across geographies and products. We’re also pleased that we generated $2.2 billion in cash from operations in fiscal 2004 and ended the year with a cash and marketable securities balance in excess of $7.6 billion. This marks the 15th consecutive fiscal year that Sun has generated positive cash flow from operations.”

“Delivering growth and preliminary profits in Q4 is a great way to end the year, with 46% server unit volume growth year-over-year and a sequential increase of 18%,” said Scott McNealy, chairman and chief executive officer, Sun Microsystems, Inc. “We enter the new fiscal year with a strong balance sheet, the strongest product and services portfolio in our history, and the largest developer and partner communities we’ve ever had. We’re delivering innovations based on some of the industry’s most coveted technologies, SolarisTM OS and JavaTM platform, running on industry standard SPARC®, AMD Opteron and Intel Xeon processors. In fiscal 2005, we’re focused on growing revenue and market share, generating cash, achieving sustained profitability, and rewarding long-term shareholders.”

“Let’s start putting some questions to rest,” said Jonathan Schwartz, president and chief operating officer, Sun Microsystems, Inc. “With the 74% sequential increase in Java Enterprise System subscribers, now totaling 303,000, we’ve made progress in both monetizing Java technology and driving long-term savings for customers. In addition, Solaris OS volumes and OEM support on industry standard AMD and Intel platforms grew at an accelerated pace, with a 25% increase in Solaris x86 registered licenses to almost 1.1 million and a 69% sequential increase in Software Express for Solaris x86. We are now unquestionably on the offensive, with powerful resources at our disposal, and an excellent product calendar.”

Sun has scheduled a conference call today to discuss its earnings for the fourth quarter and full fiscal year 2004 at 1:30 p.m. (PT), which is being broadcast live at www.sun.com/investors.

About Sun Microsystems, Inc.

Since its inception in 1982, a singular vision — “The Network Is The Computer” — has propelled Sun Microsystems, Inc. (Nasdaq: SUNW) 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://sun.com

This news release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements that Sun’s financial results are pending final resolution of accounting for the Microsoft settlement; that Sun is delivering innovations based on some of the industry’s most coveted technologies; that in fiscal 2005, Sun is focused on growing revenue and market share, generating cash, achieving sustained profitability and rewarding long-term shareholders; and that Sun is now unquestionably on the offensive. Such statements are just predictions and involve risks and uncertainties such that actual results and performance may differ materially. Factors that might cause such a difference include risks associated with how the company accounts for the Microsoft settlement; continued adverse macroeconomic conditions in the U.S. and internationally, including adverse business conditions in the specific markets for Sun’s products; lack of success in the timely development, production and acceptance of new products and services and in technical advancements; increased competition, and the failure to manage costs and improve operating efficiencies. These and other risks are detailed from time to time in Sun’s periodic reports that are filed with the Securities and Exchange Commission, including Sun’s annual report on Form 10-K for the fiscal year ended June 30, 2003 and quarterly reports on Form 10-Q for the fiscal quarters ended September 28, 2003, December 28, 2003, and March 28, 2004.

Sun, Sun Microsystems, the Sun logo, Solaris, Java, 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.