SUN MICROSYSTEMS INC, 424B3, 1999-07-26

SUN MICROSYSTEMS INC
424B3, 1999-07-26
ELECTRONIC COMPUTERS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-81101

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND
MAY BE CHANGED.

Subject to Completion. Dated July 23, 1999.
Prospectus Supplement to Prospectus dated July 14, 1999.

$1,000,000,000
LOGO

$ % Senior Notes due 200
$ % Senior Notes due 200
$ % Senior Notes due 200
----------------------

Sun Microsystems, Inc. will pay interest on the notes on and
of each year. The first such payment will be made on
, 2000. The notes will be issued only in denominations of $1,000 and
integral multiples of $1,000.

Sun has the option to redeem all or any portion of the notes at any time at
the redemption price described in the prospectus supplement, plus accrued
interest.

Application has been made to list the notes on the Luxembourg Stock
Exchange. However, Sun does not expect to receive approval of its application
from the Luxembourg Stock Exchange prior to the delivery date of the notes.
Furthermore, Sun cannot guarantee that approval for listing of the notes will be
received at all.

See "Risk Factors" on page 4 of the accompanying prospectus to read about
certain factors you should consider before buying the notes.
----------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------

<TABLE>
<CAPTION>
Per Note Per Note Per Note
Due 200 Total Due 200 Total Due 200 Total
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Initial public offering price..... % $ % $ % $
Underwriting discount............. % $ % $ % $
Proceeds, before expenses, to
Sun............................. % $ % $ % $
</TABLE>

The initial public offering prices set forth above do not include accrued
interest, if any. Interest on the notes will accrue from , 1999 and
must be paid by the purchaser if the notes are delivered after ,
1999.
----------------------

The underwriters expect to deliver the notes in book-entry form only
through the facilities of The Depository Trust Company, Euroclear and Cedelbank
against payment in New York, New York on , 1999.

GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.

SALOMON SMITH BARNEY

ABN AMRO INCORPORATED

BANC OF AMERICA SECURITIES LLC

CHASE SECURITIES INC.

J.P. MORGAN & CO.

----------------------

Prospectus Supplement dated , 1999.
<PAGE> 2

NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY SUN OR ANY
UNDERWRITER THAT WOULD PERMIT DISTRIBUTION OF A PROSPECTUS IN ANY JURISDICTION
WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. ANY
PERSON INTO WHOSE POSSESSION THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING
PROSPECTUS COMES IS ADVISED BY SUN AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO, THE OFFERING OF THE NOTES AND THE
DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS.

Sun, having made all reasonable inquiries, confirms that this prospectus
supplement and the accompanying prospectus contain all information with respect
to Sun and the notes which is material in the context of the issuance and
offering of the notes, that the information contained in this prospectus
supplement and accompanying prospectus is true and accurate in all material
respects and is not misleading, that the opinions and intentions expressed in
this prospectus supplement and accompanying prospectus are honestly held and
have been reached after considering all relevant circumstances and are based on
reasonable assumptions, that there are not other facts the omission of which
would, in the context of the issue and offering of the notes, make this
prospectus supplement and the accompanying prospectus as a whole or any of such
information or the expression of any such opinions or intentions misleading in
any material respect, that all reasonable inquiries have been made by Sun to
verify the accuracy of such information and that this prospectus supplement and
the accompanying prospectus do not contain an untrue statement of material fact
or omit to state a material fact required to be stated in this prospectus
supplement and accompanying prospectus or necessary in order to make the
statements in this prospectus supplement and accompanying prospectus, in the
light of the circumstances under which they were made, not misleading. Sun
accepts responsibility accordingly.

This prospectus supplement and the accompanying prospectus refer to
documents incorporated by reference. For the prospectus used for purposes of
listing with the Luxembourg Stock Exchange, incorporation by reference will not
be applicable and those documents otherwise incorporated by reference as of the
date of this prospectus supplement will be attached to this prospectus as a
supplement.

FORWARD-LOOKING STATEMENTS

This prospectus supplement includes or incorporates by reference
forward-looking statements, including those identified by the words "believes,"
"anticipates," "expects," and similar expressions. Sun has based these
forward-looking statements on its current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions, including, among other things:

- - changes in general economic conditions,

- - adverse changes in the specific market for Sun's products,

- - adverse business conditions,

- - decreased or lack of growth in the computing industry,

- - adverse changes in customer order patterns,

- - increased competition,

- - lack of acceptance of new products,

- - pricing pressures,

- - lack of success in technological advancements,

- - risks associated with foreign operations, including the downturn of economic
trends and unfavorable currency movements in the Asia Pacific and Latin
American marketplaces,

- - risks associated with Sun's efforts to comply with Year 2000 requirements,

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<PAGE> 3

- - risks associated with Sun's new business practices, processes and information
systems.

Sun undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus supplement or in the
incorporated documents might not occur.

You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. Sun has
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Sun is not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus is accurate as of the date on the
front cover of this prospectus supplement only. The business, financial
condition, results of operations and prospects of Sun may have changed since
that date.

THE COMPANY

We are a leading worldwide provider of products, services and support
solutions for building and maintaining network computing environments. We sell
scalable computer systems, high-speed microprocessors, and a complete line of
high performance software for operating network computing equipment and storage
products. We also provide a full range of services, including support,
education, and professional services. Our products and services command a
significant share of the rapidly growing network computing market, which
includes the Internet and corporate intranets. Our products are used for many
demanding commercial and technical applications in various industries including
telecommunications, manufacturing, financial services, education, retail,
government, energy and healthcare. We owe much of our success to our adherence
to open industry standards, the Solaris(TM) Operating Environment, the UNIX(R)
platform, and the UltraSPARC(TM) (Ultra Scalable Processor Architecture)
microprocessor architecture. In addition we are committed to investment in and
ownership of intellectual property, leveraging our partnerships with industry
leaders and enabling the Internet and the "Net Economy."

For the latest fiscal year ended June 30, 1999, we had annual revenues of
more than $11.7 billion, over 29,000 employees, and we conduct business in over
150 countries. We were incorporated in California in February, 1982 and
reincorporated in Delaware in July, 1987.

RECENT DEVELOPMENTS

Net revenues for the fourth quarter of fiscal 1999 were $3,514.6 million,
an increase of 22% from $2,881.1 million in the fourth quarter of fiscal 1998.
Net income for the fourth quarter of fiscal 1999 was $395.2 million, or $0.48
per share on a diluted basis, an increase of 44.8% and 37.1%, respectively, from
net income of $273 million, or $0.35 per share on a diluted basis, in the fourth
quarter of fiscal 1998.

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CAPITALIZATION

The following table sets forth the unaudited long-term debt and
capitalization of Sun and its subsidiaries as of March 28, 1999, and at that
date as adjusted to give effect to the offering of the notes in the amount of $1
billion. This table should be read in conjunction with Sun's consolidated
financial statements and notes thereto which have been incorporated in this
prospectus supplement by reference.

<TABLE>
<CAPTION>
MARCH 28, 1999(1)
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
200 Notes.................................................. $ -- $
200 Notes.................................................. --
200 Notes.................................................. --
---------- ----------
Total..................................................... $ -- $1,000,000
---------- ----------
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000 shares
authorized; 3,000 shares designated as Series A
Preferred; none of which are issued and outstanding.... -- --
Common Stock, $0.0067 par value, 1,800,000 shares
authorized; 867,195,832 shares issued and
outstanding(2)......................................... 581 581
Additional paid-in capital................................ 1,680,421 1,680,421
Retained earnings......................................... 3,795,041 3,795,041
Treasury stock, at cost; 93,333,310 shares................ 1,061,135 1,061,135
Currency translation adjustment and other................. (3,762) (3,762)
Total stockholders' equity............................. 4,411,146 4,411,146
---------- ----------
Total capitalization................................. $4,411,146 $4,411,146
========== ==========
</TABLE>

- -------------------------
(1) Amounts adjusted to reflect a two-for-one stock split effected in the form
of a dividend which was paid on April 8, 1999. All references to common
stock and stockholders' equity have been restated as if the stock dividend
had occurred as of March 28, 1999.

(2) Does not include approximately 220,575,986 shares of Common Stock reserved
for issuance pursuant to Sun's stock option and stock purchase plans under
which options and rights to purchase approximately 97,155,666 shares were
outstanding as of March 28, 1999.

USE OF PROCEEDS

We anticipate that any net proceeds from the sale of notes will be used to
fund expansion of our business, including for:

- - additional working capital,

- - capital expenditures,

- - acquisitions of products, technologies and businesses, and

- - general corporate purposes.

Pending the application of the net proceeds, we expect to invest the
proceeds from the sale of notes in interest-bearing securities.

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<PAGE> 5

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statements of income of Sun for each of the five
years in the period ended June 30, 1998 and the selected consolidated balance
sheet data as of June 30, 1996, 1997 and 1998 have been derived from Sun's
consolidated financial statements which statements have been audited by Ernst &
Young LLP, independent public accountants, as indicated in their report
incorporated by reference in this prospectus. The income statement data for the
nine months ended March 29, 1998 and March 28, 1999 and 1998, and the balance
sheet data as of March 28, 1999 are derived from unaudited consolidated
financial statements. The selected financial data should be read in conjunction
with Sun's consolidated financial statements and accompanying notes, which are
incorporated in this prospectus by reference. See "Where You Can Find More
Information" in the accompanying prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, ---------------------
------------------------------------------ MARCH 29, MARCH 28,
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY CONSOLIDATED STATEMENTS OF INCOME:
Net revenues....................................... $4,690 $5,902 $7,095 $8,598 $9,791 $6,910 $8,212
Costs and expenses:
Cost of sales.................................... 2,753 3,336 3,921 4,320 4,693 3,301 3,960
Research and development......................... 500 563 653 826 1,014 735 910
Selling, general and administrative.............. 1,160 1,503 1,788 2,402 2,777 1,985 2,263
Purchased in-process research and development...... -- -- 58 23 177 162 121
------ ------ ------ ------ ------ ------ ------
Total costs and expenses....................... 4,413 5,402 6,420 7,571 8,661 6,183 7,254
====== ====== ====== ====== ====== ====== ======
Operating income................................... 277 500 675 1,027 1,130 728 958
Gain on sale of equity investment.................. -- -- -- 62 -- -- --
Interest income (expense), net..................... 6 23 34 32 46 33 58
Income before income taxes......................... 283 523 709 1,121 1,176 761 1,016
Provision for income taxes......................... 88 167 232 359 413 271 380
Net income......................................... $ 196 $ 356 $ 477 $ 762 $ 763 $ 490 $ 636
====== ====== ====== ====== ====== ====== ======
Net income per common share -- diluted............. $ 0.25 $ 0.45 $ 0.61 $ 0.98 $ 0.97 $ 0.62 $ 0.79
====== ====== ====== ====== ====== ====== ======
Shares used in the calculation of net income per
common share -- diluted.......................... 774 787 787 778 789 789 810
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999 AS OF
-------------------------- MARCH 28,
1996 1997 1998 1999
------ ------ ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investments........... $ 990 $1,113 $1,298 $1,999
Working capital............................................. 1,544 1,879 2,025 2,502
Total assets................................................ 3,801 4,697 5,771 7,509
Long-term debt and other obligations........................ 60 106 75 --
Stockholders' equity........................................ 2,251 2,742 3,514 4,411
</TABLE>

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<PAGE> 6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

The following table sets forth items from the Condensed Consolidated
Statements of

Income as a percentage of total net revenues:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Products............................ 86.1% 87.6% 86.1% 88.0%
Services............................ 13.9 12.4 13.9 12.0
----- ----- ----- -----
Total net revenues............... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of sales:
Products............................ 39.9 39.6 39.9 40.4
Sales............................... 7.7 7.1 8.3 7.4
----- ----- ----- -----
Total cost of sales.............. 47.6 46.7 48.2 47.8
----- ----- ----- -----
Gross margin.......................... 52.4 53.3 51.8 52.2
Research and development.............. 11.0 10.7 11.1 10.6
Selling, general and administrative... 27.4 28.5 27.6 28.7
Purchased in-process research and
development......................... 1.0 -- 1.5 2.3
----- ----- ----- -----
Operating income...................... 13.1 14.1 11.7 10.5
Interest income, net.................. 0.7 0.3 0.7 0.5
----- ----- ----- -----
Income before income taxes............ 13.8 14.4 12.4 11.0
Provision for income taxes............ 4.9 4.9 4.7 3.9
----- ----- ----- -----
Net Income............................ 8.9% 9.5% 7.7% 7.1%
===== ===== ===== =====
</TABLE>

The following sections contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties, and the cautionary
statements set forth below, specifically those contained under "Forward-Looking
Statements" in this prospectus, identify important factors that could cause
actual results over the next few quarters to differ materially from those
predicted in any such forward-looking statements.

RESULTS OF OPERATIONS

NET REVENUES

Net revenues were $2,936 million for the third quarter of fiscal 1999 and
$8,211.7 million for the first nine months of fiscal 1999, representing
increases of 24.4% and 18.8%, respectively, over the corresponding periods of
fiscal 1998.

Sun's products net revenues were $2,526.6 million for the third quarter of
fiscal 1999, an increase of $459.3 million, or 22.2%, over the third quarter of
fiscal 1998. Net product revenues were $7,067.5 million for the nine months
ended March 28, 1999, an increase of $990.3 million, or 16.3%, over the
corresponding period of fiscal 1998. Substantially all of the growth in products
revenues for the quarter ended March 28, 1999 resulted from strong demand for
Sun's enterprise and workgroup servers, and to a lesser extent from increased
revenues generated by Sun's storage products. More than half of the growth in
products revenues for the nine month period ended March 28, 1999 resulted from
strong demand for workgroup servers and to a lesser extent, Sun's low-end
desktop and storage products. The growth in products revenue in both the quarter
and year-to-date periods was partially offset by a decline in high-end desktop
product volumes as the result of a shift in

S-6
<PAGE> 7

customer purchasing patterns towards low-end desktop products and workgroup
servers.

Sun's services net revenues were $409.4 million for the third quarter of
fiscal 1999, an increase of $115.8 million or 39.4% over the third quarter of
fiscal 1998. Net revenues from services were $1,144.2 million for the nine
months ended March 28, 1999, an increase of $311.6 million, or 37.4%, over the
corresponding period of fiscal 1998. The increases in services revenues are
primarily the result of a shift in product mix toward premium priced contracts
and a larger installed product base due to increased product unit sales, as well
as increased revenues associated with Sun's professional and educational
services.

Domestic net revenues increased by 22% and 17.3 % in the third quarter and
first nine months of fiscal 1999, respectively. International net revenues
(including United States exports) grew 26.7% and 20.4% in the third quarter and
first nine months of fiscal 1999, respectively, compared with the corresponding
periods of fiscal 1998. In U.S. dollars, European net revenues increased 23.6%
and 26.9%, Rest of World (ROW) net revenues increased 26.8% and 16%, and
Japanese net revenues increased 35% and 9.2%, in the third quarter and first
nine months of fiscal 1999, respectively, when compared with the corresponding
periods of fiscal 1998. The increases in Europe and the ROW are due to demand
for Sun's network computing products and services. For the quarter ended March
28, 1999, demand was particularly strong in Germany and certain southern
European countries, while relatively unchanged in the United Kingdom and certain
Northern European countries in relation to the prior year's comparable period.
For the nine months ended March 28, 1999, Sun experienced continued growth on a
year over year basis in all European regions, with the strongest growth in
Germany and Southern Europe. Although Sun has experienced U.S. dollar revenue
growth in the European marketplace on both a year-over-year and
quarter-over-quarter basis in relation to the prior year's comparable periods,
there can be no assurance that such trends will continue. In particular, if
capital spending declines in certain countries or industries as the result of
Year 2000 spending concerns or other economic factors, Sun's results from
operations and cash flows could be adversely impacted. Sun attributes the
increase in Japanese revenues in the third quarter and nine months ended March
28, 1999 primarily to increased demand within the region for Sun's products,
rather than a sign of strengthening in the Asian economies. Sun remains cautious
with regard to the Japanese market and does not expect the current Japanese
macroeconomic trends to change significantly or materially in the near term. The
foregoing is a forward-looking statement that is subject to risks and
uncertainties, and actual results may differ materially from those set forth in
such statement as the result of a number of factors. In particular, if the
Japanese economy significantly worsens in a quarter or declines over an extended
period of time, Sun's results from operations and cash flows could be adversely
affected.

A portion of Sun's operations consists of manufacturing and sales
activities in foreign jurisdictions. As a result, Sun's results could be
significantly adversely affected by factors such as changes in foreign currency
exchange rates or economic conditions in the foreign markets in which Sun
distributes its products. Sun is primarily exposed to changes in exchange rates
on the Japanese yen, British pound sterling, French franc and German mark. When
the U.S. dollar strengthens against these currencies, the U.S. dollar value of
non-U.S. dollar-based sales decreases. When the U.S. dollar weakens against
these currencies, the U.S. dollar value of non-U.S. dollar-based sales
increases. Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs
increases when the U.S. dollar weakens and decreases when the U.S. dollar
strengthens. Overall Sun is a net receiver of currencies other than the U.S.
dollar and, as such, benefits from a weaker dollar, and is adversely affected by
a stronger dollar relative to major currencies worldwide. Accordingly, changes
in exchange rates, and in particular a strengthening of the U.S. dollar, may
adversely affect Sun's consolidated sales and gross margins as expressed in U.S.
dollars.

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To mitigate the short-term effect of changes in currency exchange rates on
Sun's non-U.S. dollar-based sales, product procurement, and operating expenses,
Sun regularly hedges its net non-U.S. dollar-based exposures by entering into
foreign exchange forward and option contracts to hedge transactions. Currently,
hedge contracts do not extend beyond three months. Given the short-term nature
of Sun's foreign exchange forward and options contracts, Sun's exposure to risk
associated with currency market movement on these instruments is not material.

GROSS MARGIN

Total gross margin was 52.4% for the third quarter of fiscal 1999 and
51.8% for the first nine months of fiscal 1999, compared with 53.3% and 52.2%,
respectively, for the corresponding periods of fiscal 1998.

Products gross margin was 53.7% in the third quarter of fiscal 1999 and
53.6% for the first nine months of fiscal 1999, compared with 54.8% and 54.1%,
respectively, for the corresponding periods of fiscal 1998. The decreases in the
products gross margin for the third quarter and first nine months of fiscal 1999
reflect the effects of increased volumes of lower margin low-end desktop
products and certain workgroup servers. These decreases in products gross margin
are partially offset by an increased volume of higher margin richly configured
enterprise servers and a reduction in manufacturing costs. There could be a
further downward impact upon products gross margin as the result of continued
shifts in customer purchasing patterns towards low-end desktop products and
workgroup servers.

Services gross margin was 44.7% for the third quarter of fiscal 1999 and
40.5% for the first nine months of fiscal 1999, compared with 42.7% and 38.9%,
respectively, for the corresponding periods of fiscal 1998. The increases in
services gross margin for the third quarter and first nine months of fiscal 1999
reflect increased market penetration in enterprise datacenter accounts, an
overall shift in service contract product mix toward premium priced contract
offerings resulting from a larger installed base of high-end server products,
increased enrollment in training courses, increased utilization of customer
training facilities, continued growth in professional services, and increased
economies of scale in certain geographic markets. The quarter over quarter
increase in services gross margin was greater than the year-over-year increase,
partially due to further realization of benefits related to infrastructure
investments by Sun in its services business in fiscal 1998 and early fiscal
1999. There can be no assurance that services gross margins will continue to
grow at a rate consistent with rates previously realized. Sun continuously
evaluates the competitiveness of its product offerings. These evaluations could
result in repricing actions in the near term. Sun's future operating results
would be adversely affected if such repricing actions were to occur and Sun were
unable to mitigate the resulting margin pressure by maintaining a favorable mix
of systems, software, service, and other products and by achieving component
cost reductions, operating efficiencies and increasing volumes.

RESEARCH AND DEVELOPMENT

Research and development (R&D) expenses increased to $323.1 million in the
third quarter of fiscal 1999, compared with $252.8 million for the third quarter
of fiscal 1998. R&D expenses were $909.9 million for the first nine months of
fiscal 1999, compared with $734.6 million for the corresponding period of fiscal
1998. As a percentage of total net revenues, R&D expenses were 11.0% and 11.1%
for the third quarter and first nine months of fiscal 1999, respectively,
compared with 10.7 % and 10.6% for the third quarter and first nine months of
fiscal 1998, respectively. Both the dollar and percentage increase in R&D
expenses in the third quarter and first nine months of fiscal 1999 over the
corresponding periods in fiscal 1998 primarily reflect increased expenditures
focused on the development of a broad line of scaleable hardware products,
including servers, workstations and storage technologies, software products
which utilize the Java(TM) platform, Solaris(TM) operating environment

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software and SPARC(TM) microprocessors. The remaining increase in R&D expenses
is due to further development of products acquired through acquisitions and
increased compensation and compensation-related costs due primarily to higher
levels of R&D staffing. The increase in R&D expenses reflects Sun's belief that
to maintain its competitive position in a market characterized by rapid rates of
technological advancement, we must continue to invest significant resources in
new systems, software products and microprocessor development, as well as
enhancements to existing products. Sun continues to expect the level of R&D
expenses to remain at approximately 11% of revenue for fiscal 1999. The
foregoing is a forward-looking statement that is subject to risks and
uncertainties and actual results could differ materially from those set forth in
such statement as a result of a number of factors. In particular, Sun's costs of
product development and related compensation expenses could increase.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative (SG&A) expenses increased to $803.9
million in the third quarter of fiscal 1999, compared with $672.6 million for
the third quarter of fiscal 1998. SG&A expenses were $2,263 million for the
first nine months of fiscal 1999, compared with $1,984.5 million for the
corresponding period of fiscal 1998. As a percentage of total net revenues, SG&A
expenses decreased to 27.4% and 27.6% for the third quarter and first nine
months of fiscal 1999, respectively, from 28.5% and 28.7%, for the third quarter
and first nine months of fiscal 1998, respectively. Overall SG&A spending
increased by approximately $131.2 million or 19.5% in the third quarter of
fiscal 1999 in comparison with the same period of fiscal 1998. For the nine
month period ended March 28, 1999, overall SG&A spending increased by
approximately $278.5 million or 14% in comparison to the corresponding period of
fiscal 1998. The dollar increases in fiscal 1999 are primarily attributable to
increased compensation and compensation related expenses resulting from higher
levels of headcount, principally in the sales organization, annual salary
adjustments and, to a lesser extent, marketing costs related to promotional
programs and increased goodwill amortization expense resulting from several
acquisitions. The dollar increase for the nine months ended March 28, 1999 also
reflects investments aimed at improving Sun's own business processes. Sun
expects to continue to hire personnel, although at a lower rate than in fiscal
1998, to further expand its demand creation programs and support organizations.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT

For information with respect to Sun's in-process research and development
charges for the third quarter and nine months of fiscal 1999, see Sun's
Quarterly Report on Form 10-Q for the quarter ended March 28, 1999 incorporated
by reference in this prospectus.

INTEREST INCOME, NET

Net interest income was $22.4 million for the third quarter and $58.0
million for the first nine months of fiscal 1999, compared with $12.4 million
and $33.1 million, respectively for the corresponding periods in fiscal 1998.
The increases in 1999 are primarily the result of higher interest earnings due
to a larger average portfolio of cash and short-term investments.

INCOME TAXES

Sun's effective income tax rate was 33% for the third quarter and first
nine months of fiscal 1999, before tax charges of $10.9 million resulting from a
write-off of IPRD associated with the acquisition of Maxstrat in the third
quarter of fiscal 1999, $3.2 million resulting from a write-off of IPRD
associated with the acquisition of i-Planet in the second quarter of fiscal 1999
and $30.4 million resulting from a write-off of IPRD associated with the
acquisition of NetDynamics in the first quarter of fiscal 1999. The effective
tax rate including such charges for the third quarter and nine months ended
March 28, 1999 was 35.7% and 37.4%, respectively. Sun's effective income tax
rate

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<PAGE> 10

for the third quarter and nine months ended March 29, 1998 was 33% before a tax
charge of $19.8 million resulting from a write-off of IPRD associated with the
acquisitions of Diba Inc. and Integrity Arts, Inc. in the first quarter of
fiscal 1998. Sun currently expects its effective tax rate to remain at 33% for
the balance of fiscal 1999, exclusive of any acquisition-related charges.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As the Year 2000
approaches, these code fields will need to be able to distinguish years
beginning with "19" from those beginning with "20." As a result, in less than
six months, computer systems and/or software products used by many companies may
need to be upgraded to comply with such Year 2000 requirements. Sun is currently
expending resources to review its products and services, as well as its internal
use software in order to identify and modify those products, services and
systems that are not Year 2000 compliant. Sun believes that the vast majority of
these costs are not incremental to Sun but represent a reallocation of existing
resources and include regularly scheduled system upgrades and maintenance. In
addition, Sun has made custom coding enhancements to its mission-critical
internal business systems and Sun believes that such internal systems are now
Year 2000 compliant. Sun is working to make its remaining internal systems Year
2000 compliant by September 30, 1999.

Although Sun believes that the costs associated with the aforementioned
Year 2000 efforts are not material, Sun currently estimates that such costs will
be approximately $37 million, of which approximately $25 million has been spent
through June 30, 1999. The aforementioned costs are estimates due in large part
to the fact that Sun does not separately track the internal labor costs
associated with Year 2000 compliance, unless such costs are incurred by
individuals devoted primarily to Year 2000 compliance efforts. These cost
estimates do not include any potential costs related to any customer or other
claim. In addition, these cost estimates are based on the current assessment of
the ongoing activities described above, and are subject to change as Sun
continuously monitors these activities. Sun believes any modifications deemed
necessary will be made on a timely basis and does not believe that the cost of
such modifications will have a material adverse effect on Sun's operating
results. Sun currently expects the aforementioned evaluation of its products,
services, and systems and any remediation necessary will be completed by
September 30, 1999. As of June 30, 1999, Sun had not identified any items or
areas which would require significant remediation efforts. Sun's expectations as
to the extent and timeliness of any modifications required in order to achieve
Year 2000 compliance and the costs related thereto are forward-looking
statements subject to risks and uncertainties. Actual results may vary
materially as a result of a number of factors, including, among others, those
described in this section. There can be no assurance however, that Sun will be
able to successfully modify on a timely basis such products, services and
systems to comply with Year 2000 requirements, which failure could have a
material adverse effect on Sun's operating results.

Sun has established a program to assess whether certain of its products
are Year 2000 compliant. Under the program, Sun is in the process of performing
tests on its products listed on Sun's price lists. To monitor this program and
to help customers evaluate their Year 2000 issues Sun has created a web site at
http://sun.com/y2000/cpl.html which identifies the following categories:
products that were released Year 2000 compliant; products that require
modifications to be Year 2000 compliant; products under review; products that
are not Year 2000 compliant and need to be replaced with a Year 2000 compliant
product; source code products that could be modified and implemented without
Sun's review; and products that do not process or manipulate date data or have
no date-related technology. This list is periodically updated as analysis of
additional products is completed.

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Based on Sun's assessment to date, most newly introduced products and
services of Sun are Year 2000 compliant, however, there can be no assurance that
Sun's current products do not contain undetected errors or defects associated
with Year 2000 functions that may result in material costs to Sun. In addition,
some of Sun's customers are running products that are not Year 2000 compliant
and will require an upgrade or other remediation to become Year 2000 compliant.
Sun provides limited warranties as to Year 2000 compliance on certain of its
products and services. Except as specifically provided for in the limited
warranties, Sun does not believe it is legally responsible for costs incurred by
customers to achieve Year 2000 compliance. Sun has been taking steps to identify
affected customers, raise customer awareness related to noncompliance of Sun's
older products and encourage such customers to migrate to current products or
product versions. It is possible that Sun may experience increased expenses in
addressing migration issues for such customers or customer dissatisfaction as a
result of Year 2000 issues, which may have a material adverse effect on Sun's
operating results.

Sun also faces risks to the extent that suppliers of products, services
and systems purchased by Sun and others with whom Sun transacts business on a
worldwide basis do not have business systems or products that comply with Year
2000 requirements. To the extent that Sun is not able to test technology
provided by third party hardware or software vendors, Sun is in the process of
carrying out audits and obtaining Year 2000 compliance certifications from each
of its major vendors that their products and internal systems, as applicable,
are Year 2000 compliant. In the event any such third parties cannot timely
provide Sun with products, services or systems that meet the Year 2000
requirements, Sun's operating results could be materially adversely affected.
Furthermore, a reasonably likely worst case scenario would be if one of Sun's
major vendors experienced a material disruption in business, which caused Sun to
experience a material disruption in business, such a disruption would have a
material adverse effect on Sun's business, financial condition and operating
results. Should either Sun's internal systems or the internal systems, products
or services of one or more of Sun's major vendors fail to achieve Year 2000
compliance, Sun's business, financial position or results of operations could be
materially adversely affected. Sun is currently developing contingency plans to
deal with potential Year 2000 problems related to such of its internal systems
as are deemed to be high risk and with respect to products and services provided
by outside vendors and expects these plans to be complete by September 30, 1999.

Although Sun believes that the cost of Year 2000 modifications for both
internal use software and systems, as well as Sun's products are not material,
there can be no assurance that various factors relating to the Year 2000
compliance issues will not have a material adverse effect on Sun's business,
operating results or financial position. For example, a significant amount of
litigation may arise out of Year 2000 compliance issues and there can be no
assurance as to the extent Sun may be affected by any such litigation. Even
though Sun does not believe that it is legally responsible for its customer's
Year 2000 compliance obligations, it is unclear whether different governments or
governmental agencies may decide to allocate liability relating to Year 2000
compliance to Sun without regard to specific warranties or warranty disclaimers.
Such allocation of liability could have a materially adverse effect on Sun's
financial condition and results of operations in any given quarter. Furthermore,
it is unknown how customer spending patterns may be impacted by Year 2000
issues. As customers focus on preparing their businesses for the Year 2000,
capital budgets may be spent on remediation efforts, potentially delaying the
purchase and implementation of new systems, thereby creating less demand for
Sun's products and services. These as well as other factors could have a
material adverse effect on Sun's revenues or operating results.

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LIQUIDITY AND CAPITAL RESOURCES

Sun's financial condition strengthened as of March 28, 1999 when compared
with June 30, 1998. During the first nine months of fiscal 1999, cash flows from
operating activities generated $1,485.1 million in cash and cash equivalents.
Non-cash expenses affecting cash provided by operating activities in the first
nine months of fiscal 1999 included depreciation and amortization expense of
$450.1 million, tax benefits of options exercised of $165.6 million and charges
for IPRD of $120.7 million in connection with the acquisitions of NetDynamics,
Maxstrat, i-Planet and Beduin. Favorably affecting cash provided by operations
were increases in accounts payable and other liabilities of $223 million and
$655.1 million, respectively, which reflect the timing of payments for inventory
and other items. Offsetting these items, accounts receivable increased $357.8
million which reflects an increase in revenue and days sales outstanding.
Additionally, other current assets increased due to the timing of payments for
insurance and other taxes. Other long-term assets increased primarily due to an
increase in intangible assets in connection with the acquisitions of NetDynamics
and Maxstrat, as well as a license acquired in connection with the Sun/AOL
transaction as described in the footnotes to the condensed consolidated
financial statements included in Sun's Quarterly Report on Form 10-Q for the
quarter ended March 28, 1999 incorporated by reference in this prospectus
supplement and accompanying prospectus.

Sun's investing activities used $1,567.4 million of cash in the first nine
months of fiscal 1999, an increase of $794.2 million from the prior year's
comparable period. The increase resulted primary from increased acquisitions of
short-term investments during the first nine months of fiscal 1999, as compared
with the prior year's period. Also included in investing activities is capital
spending for real estate development, as well as capital additions to support
increased headcount, primarily in Sun's engineering, services and marketing
organizations.

Sun's financing activities used $32.6 million of cash in the first nine
months of fiscal 1999, a decrease of $163.6 million from the prior year's
comparable period. The decrease is primarily due to an increase in stock
issuances during the first nine months of fiscal 1999 and a reduction in
short-term borrows for the first nine months of fiscal 1998.

At March 28, 1999, Sun's primary sources of liquidity consisted of cash,
cash equivalents and short-term investments of $1,998.8 million and a revolving
credit facility with banks aggregating $500 million, which was available subject
to compliance with certain covenants. Additionally, in June 1999, Sun filed a
Registration Statement with the Securities and Exchange Commission relating to
the registration for public offering of senior and subordinated debt securities
and common stock with an aggregate initial public offering price of up to $4
billion. On July 14, 1999, the Registration Statement became effective, so that
Sun may now choose to offer, from time to time, the securities pursuant to Rule
415 in one or more separate series, in amounts, at prices and on terms to be set
forth in the prospectus contained in the Registration Statement and in one or
more supplements to the prospectus. Sun believes that the liquidity provided by
existing cash and short-term investment balances and the borrowing arrangements
described above will be sufficient to meet Sun's capital requirements through
fiscal 2000. However, Sun believes the level of financial resources is a
significant competitive factor in its industry and may choose at any time to
raise additional capital through debt or equity financing to strengthen its
financial position, facilitate growth and provide Sun with additional
flexibility to take advantage of business opportunities that may arise.

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BUSINESS

This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, particularly statements
regarding market opportunities, market share growth, competitive growth, new
product introductions, success of research and development, research and
development expenses, customer acceptance of new products, gross margin and
selling, and general and administrative expenses. These forward-looking
statements are just predictions and involve risks and uncertainties such that
actual results may differ materially. For a detailed listing of the potential
factors affecting our business and these forward-looking statements, please
refer to "Risk Factors."

GENERAL

For the latest fiscal year ended June 30, 1999, we had annual revenues of
more than $11.7 billion, over 29,000 employees, and we conducted business in
over 150 countries. We were incorporated in California in February, 1982 and
reincorporated in Delaware in July, 1987.

BUSINESS STRATEGY

Our objective is to expand our position as a leading global provider of
network computing products and services. The key elements of our strategy
include:

- - developing network computing products and technologies that enable the
Internet and the Net Economy

- - providing competitive solutions based on open industry standards

- - extending our technology leadership and innovation

- - investing in support, education and professional services

- - leveraging strong industry relationships

DEVELOPING NETWORK COMPUTING PRODUCTS AND TECHNOLOGIES THAT ENABLE THE INTERNET
AND THE NET ECONOMY

We were founded on the notion that computer networks are greater than the
sum of their parts and that communication and information access should be
uninhibited by the boundaries of proprietary software and hardware
architectures. To help us explain this vision we coined the phrase, "The Network
is the Computer(TM)", and built networking technologies into every product. From
the Solaris(TM) Operating Environment to UltraSPARC microprocessors, from
scalable servers to the Java(TM) and Jini(TM) platforms, we are focused on
providing customers with a single, high performance, highly reliable network
computing architecture. This single focus provides customers with investment
protection for their legacy computing environments, a single operating
environment that is both backward compatible and scalable across our entire
product line (binary

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compatibility) and an upgrade path for their entire network.

The Internet has grown to encompass much more than simple information
sharing. Increasingly, the Internet is enabling a whole new paradigm of business
commerce that brings customers closer to suppliers and streamlines the delivery
of goods and services. This new paradigm is commonly referred to as the Net
Economy and is changing the fundamentals of every business and every industry
across the globe. Through our products and technologies, we are helping
customers participate in the Net Economy by implementing new processes and
practices to take advantage of the opportunities that the Internet can provide.

PROVIDING COMPETITIVE SOLUTIONS BASED ON OPEN INDUSTRY STANDARDS

From inception, we have focused on developing products and technologies
based upon open industry standards to provide customers with flexibility for
their networking environments. Through our commitment to open, industry
standards, we have created technologies, such as Network File System (NFS(TM)),
Scalable Processor Architecture (SPARC(TM)) and most recently Java(TM) and
Jini(TM), that have facilitated industry growth.

Through the Internet, we are realizing our long-standing vision of a
network where information can be accessed at anytime, from anywhere, by anyone
and from any device. The Internet is growing and expanding to be more than just
a repository of information. Increasingly, businesses are looking to the
Internet to enable more effective and efficient methods of electronic commerce
and communication, to streamline business practices, increase productivity and
reduce both costs and complexity. By harnessing the power of the Internet,
businesses are transforming traditional practices and promoting the Net Economy.
We support this transformation by leveraging the power of our computing
technologies in order to provide our customers with the solutions they need to
effectively utilize the power of the Internet.

EXTENDING OUR TECHNOLOGY LEADERSHIP AND INNOVATION

We believe that in order to be a leading developer of enterprise and
Internet based products and technologies, we must continue to invest and
innovate. Through our research and development investments, which have typically
been approximately 10% of annual revenues, we are continually focusing on
raising the bar of technological innovation. Over the past few years, we have
made significant investments in several of our product technologies, including
our highly scalable UltraSPARC processor architecture, our highly reliable and
scalable Solaris Operating Environment, our cross-platform Java software
development environment powering Internet based applications, our Java-based
Jini technology that allows a broad range of devices to connect and share
information over the Internet and with one another, our scalable enterprise
servers and workstations, and our network-based storage systems and software.
Many of these technologies provide us with a competitive advantage and
differentiation in the marketplace. We intend to continue our investments into
new computing technologies and are focused on continuing to develop and deliver
leading edge network computing products based upon our innovations.

INVESTING IN SUPPORT, EDUCATION AND PROFESSIONAL SERVICES

We are also investing in the expansion of our support, education and
professional services. As the market for network computing and Internet products
and technologies expands, the demand for services also increases. In recognition
of this demand, we have hired nearly 1,700 people in the last fiscal year ended
June 30, 1999 into our Enterprise Services organization, which now employs over
7,500 professionals. With a shortage of computing professionals worldwide, our
customers are increasingly demanding support for enterprise as well as Internet
projects. They require key integration, training, support and development
services to bring their business processes and practices to the Internet. In
addition, customers are looking for network computing suppliers to

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provide them with solutions to their enterprise and Internet computing needs. To
meet the needs of our customers and partners, we will continue to invest in
acquiring additional personnel to staff our rapidly growing support, education
and professional services organization.

LEVERAGING STRONG INDUSTRY RELATIONSHIPS

While our product and service offerings are very broad, we recognize that
no single supplier of computing solutions can meet all of the needs of all of
its customers. We have established long-standing relationships with leading
value-added resellers, OEMs, service providers, independent software vendors
(ISV) and systems integrators to deliver solutions that customers demand.
Through these strong relationships, we are able to provide the end-to-end
solutions that customers require to compete in the Net Economy. We also partner
with leading network and application service providers, and offer the products,
technologies and services they require for highly reliable applications and
networking services to their customers. These cooperative relationships provide
an attractive business model for these partners and create an environment where
Sun benefits as our partners' businesses grow. In order to foster strong
relationships, we have also instituted sales force incentive and flexible
financing programs that align our operations with the success of their business.

BUSINESS ORGANIZATION

To facilitate innovation and provide world class support for our global
client base, we are structured as a group of businesses, each providing open,
standard products and services for commercial and technical computing. This
organizational structure, along with our commitment to technical excellence,
promotes an entrepreneurial and progressive culture that continues to attract
leading technologists and strengthen our position as an industry leader.

We have focused our business on the following opportunities in the network
computing industry:

COMPUTER SYSTEMS AND STORAGE

Computer Systems and Storage designs, develops, manufactures and sells a
broad range of desktop systems, servers, storage and network switches,
incorporating the UltraSPARC(TM) microprocessors and the Solaris Operating
Environment.

ENTERPRISE SERVICES

Enterprise Services provides a full range of global services and support
for heterogeneous network computing environments, including system/network
management and support, education, professional services and systems
integration.

SOFTWARE PRODUCTS AND PLATFORMS

Software Products and Platforms designs, develops and sells our Solaris
Operating Environment, Java software and our core technologies for consumer and
embedded markets which include Chorus OS(TM) (a real-time operating
environment), Java implementations and Jini technologies, as well as our
software tools and security products. In addition, this organization is also
responsible for software marketing, a software technology OEM sales group and an
expanded and integrated ISV/developer relations and market development group.

MICROELECTRONICS

Microelectronics designs, develops and markets high performance SPARC and
Java microprocessors, board reference platforms, processor modules, chips sets
and logic products for Sun products and third-party customers.

NETWORK SERVICE PROVIDER

Network Service Provider sells real-time network platforms and
carrier-grade, fault tolerant products that are designed to be extremely
reliable. Our Network Service Provider business focuses on the needs of
network-based telecommunications

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companies, cable operators, and the network equipment suppliers who develop
products and technologies for the broader service provider industry.

In addition, through our recent alliance with AOL, the Sun-Netscape
Alliance, we develop, market and sell enterprise and E-commerce software for
consumers and businesses. These software products and technologies, commonly
referred to as middleware, compliment our enterprise servers, storage and
workstation products. Combined, these products provide customers with
comprehensive solutions to their enterprise and Internet computing needs.

PRODUCTS

Our products and technologies, from our microprocessors to our Solaris
Operating Environment to high-end enterprise scalable servers, were designed,
developed and produced for the network computing environment.

WORKSTATIONS

Our workstation products include the Ultra(TM) 5, Ultra 10 and Ultra 60
models. The Ultra 5 is used for business application and software development,
offering high performance at a low cost. The Ultra 10 offers value and
performance for 3-D graphics applications and is designed for applications such
as drafting and design, animation and rendering, modeling and analysis. Finally,
the Ultra 60 is Sun's highest performance workstation, in both single and dual
processor configurations, and is suited for modeling and virtual prototyping,
medical imaging, animation and geosciences.

ENTERPRISE SERVERS

Our enterprise servers consist of workgroup servers, mid-range servers and
data center/ high-performance computing servers. These products run enterprise
mission critical application environments, directories, databases, websites and
many other applications. They offer significant scalability, reliability,
availability, serviceability and performance. In addition, all enterprise
servers share common components and offer binary compatibility for all
application environments because they all run the Solaris Operating Environment
on the UltraSPARC architecture. The primary competitive differentiators for
these products in the marketplace are their performance, scalability and
reliability. Scalability refers to a system's ability to add resources such as
additional microprocessors, memory or input/output to increase performance
without adding complexity. Reliability refers to the system's ability to run
continuously without interruption. These are two important attributes in our
enterprise server products because they provide investment protection for our
customers, avoiding costly architecture migrations and downtime that can result
from increasing business demands.

WORKGROUP SERVERS. We offer two products in the Workgroup Server group:
the Sun Enterprise(TM) 250 and 450. The Sun Enterprise 250 can be configured
with up to two microprocessors, six Ultra SCSI disks, fast ethernet, multiple
independent data paths, and multiple redundancy to provide customers with high
performance, high throughput, and high reliability for business critical
applications. The Sun Enterprise 250 can host electronic mail, websites,
directory databases and many other applications.

The Sun Enterprise 450 servers provide the scalability, performance and
reliability for critical business needs. The Sun Enterprise 450 server supports
up to four microprocessors and utilizes high speed interconnect and offers 10
PCI slots, which allows the Sun Enterprise 450 to scale as application demand
grows. The Sun Enterprise 450 provides the reliability, availability and
scalability needed for demanding applications and solutions such as groupware,
distributed database applications, clustering, enterprise resource planning as
well as e-mail and internet/intranet services.

MID-RANGE SERVERS. Our mid-range servers offer scalability supporting up
to eight processor configurations in the Sun Enterprise 3500 and up to thirty
processor configurations in the Sun Enterprise 6500. The entry level Sun
Enterprise 3500 is a powerful, scalable, versatile and upgradeable

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departmental server in a compact package. The Sun Enterprise 4500 is expandable
up to 14 processors and is one of our most modular and powerful departmental
servers, offering outstanding performance and the ability to scale system
performance and capacity as needs grow. The Sun Enterprise 5500 is also
expandable up to 14 processors and is packaged in a rack configuration allowing
the bundling of additional storage in a single enclosure. Finally, the Sun
Enterprise 6500 provides customers the ability to deploy large scale,
mission-critical applications in a network-based environment. The Sun Enterprise
6500 offers the performance and availability required for mainframe-class
mission-critical applications. Our mid-range servers are utilized for
e-commerce, databases, decision support, data mining and warehousing,
telecommunications, enterprise resource planning and network file system
support.

DATA CENTER/HIGH-PERFORMANCE COMPUTING SERVERS. In the data center/high-
performance computing server group, we offer the Sun Enterprise 10000, which is
the most scalable UNIX system in the marketplace and incorporates mainframe
features. The Sun Enterprise 10000 is designed to offer greater performance and
lower total cost of ownership than mainframe products. The Sun Enterprise 10000
is used for server consolidations, application migrations, data mining and
warehousing, custom applications, on-line transaction support, enterprise
resource planning and databases.

TELECOMMUNICATIONS SERVERS

For Telecommunications, Cable, Wireless and Network equipment providers,
our Netra servers provide NEBS (Network Equipment Building Standard) compliant,
carrier grade, high-availability solutions for mission-critical applications.
The Netra telecommunications servers are all based on the scalable SPARC/Solaris
architecture. At the entry level, the Netra(TM) t1 server offers high
availability at low cost with features such as automatic server restart,
hot-pluggable disks and lights-out management, which allow providers to remotely
manage power status and monitor system health. The Netra t1 was specifically
designed for network service providers offering a compact chassis that can be
easily stacked into existing racks.

The Netra t1120/t1125 are NEBS certified, carrier-grade servers which
allow network service providers to deploy mission critical applications and
services outside the central office. The Netra t1120 is for DC power
environments, whereas the Netra t1125 is for AC power. The Netra t1120/t1125 are
used by telecommunications and service provider customers for network policy
management, directory, load balancing, security, voice messaging and many other
applications. The Netra ft1800 is a fault tolerant server offering customers
NEBS compliance and extreme reliability. It is specifically designed for central
office and data networking environments for running mission critical
applications. The Netra ft1800 has been designed to eliminate all single points
of failure in order to provide continuous availability. The Netra ft1800 is used
for network management and telecommunications applications.

NETWORK STORAGE

Our Network Storage systems and software also support our strategy of
providing products and technologies to network computing environments. Through
our broad product line, we are able to deliver not only storage connectivity,
but also storage intelligence to the network across multiple operating
environments, including NT.

The Intelligent Storage Server(TM) A7000 offers seamless UNIX/mainframe/NT
information sharing capabilities. It is designed to deliver high-end,
heterogeneous storage supporting UNIX platforms, mainframes and NT platforms and
as such it is ideal for storage consolidation of multiple servers into a single
storage unit. The A7000 also offers campus remote mirroring for disaster
recovery or business continuance in the event of system failures.

The A5000 storage array is an all fibre channel array for high performance
data warehousing or high bandwidth applications due to the all fibre channel
pipes from host to

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fibre channel disks. It offers cluster support for mission critical availability
and performance. Both Solaris and NT platforms are supported. This highly
reliable and scalable product is a building block disk for creating a new breed
of intelligent storage networks.

The A3500 array features a high-availability design and outstanding
performance and capacity for OLTP (On-Line Transaction Processing) applications
and departmental-level storage requirements. It also offers cluster support for
OLTP applications. This product scales from disks to dual controller, high
performance, high availability storage.

The A1000/D1000 products provide a building-block solution for workgroups
and small departments. These products offer a high-performance, affordable, and
versatile storage solution. These expandable RAID (Redundant Array of
Independent Disks) systems allow customers to customize their storage
environments as a stand-alone device offered with or without a controller and to
provide optimum scalability as a rack-mounted solution.

Our tape automation products provide the flexibility, scalable capacities,
and high performance for enterprises of all sizes. Sun offers autoloaders using
8mm and digital data service (DDS-3) technology for workgroup environments. The
complete family of Sun StorEdge(TM) enterprise tape libraries has been designed
with digital linear tape (DLT) technology and one of the industry's leading
robotics technology.

Our storage software applications provide a high level of information
protection. Remote Dual Copy of the Sun StorEdge A7000 is designed to offer
continuous business operation in the event of a data center disaster, while the
Sun StorEdge Enterprise NetBackup(TM) system provides backup/restore for
thousands of users and high performance hot database backup for Oracle, Sybase,
Informix and SAP databases. Solstice Backup(TM) is a workgroup and departmental
solution, optimized for backups of local data. Sun StorEdge Volume Manager(TM),
Sun StorEdge LibMON(TM), and Sun StorEdge Enterprise HSM products provide
flexible, cost effective information management, allowing more effective
utilization of storage resources.

MICROELECTRONICS

In addition to creating the microprocessors for Sun's workstation and
server products, Microelectronics provides OEM customers with a wide range of
reference platforms in multiple markets, including enterprise, communications,
and consumer electronics. Our microelectronics products include board reference
platforms, microprocessor modules, chip sets and logic solutions and
microprocessors. The UltraSPARC architecture is one of the most scalable
solutions on the market, providing the power behind our servers and workstation
products. In addition, we also design Java-based processors for consumer
electronics, telecommunications and embedded solutions.

Our PCI, compact PCI, SBus, Java and ATX board platforms are also used in
telecommunications, enterprise computing and consumer electronics solutions,
providing OEM customers with a low-cost, scalable, highly reliable solution.
Finally, our modules, chip sets and logic products provide customers with the
performance and flexibility to create low-cost, scalable, easy to integrate
solutions.

SYSTEM AND INTERNET SOFTWARE

SOLARIS OPERATING ENVIRONMENT. The Solaris product line includes desktop,
intranet, Internet Service Provider (ISP) and enterprise operating environments
for SPARC and Intel platforms. The Solaris Operating Environment is a high
performance, highly reliable, scalable and secure operating environment that is
easy to install and use, optimized for the Java platform and supports more than
12,000 applications. The Solaris Operating Environment is optimized for
enterprise computing, Internet/Intranet business requirements, powerful
databases and high performance technical computing environments.

We also provide software solutions that focus on network management and
network

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security that complement our server and storage product offerings. In addition,
we provide Solaris and Java based tools for software developers who create high
performance applications for enterprises, telecommunications and the Internet.

JAVA. Our Java application environment is one of the first widely accepted
application environments to allow development of application software
independent of the underlying platform. In fiscal 1999, Sun broadly expanded the
definition and availability of the Java platform and extended it to the smallest
devices, such as smart cards, personal digital assistants, and embedded
controllers and set-top boxes with our MicroJava(TM) platform, as well as to the
enterprise with our EnterpriseJava platform. These two new Java platforms
address very different markets, yet share a common core architecture and
Application Programming Interface (API) set. These platforms complement our
StandardJava platform which is intended for PC and workstation clients.

The Java Development Kit enables developers to create and run applets
(which are miniature applications written in the Java programming language) that
run inside a compatible web browser, and full applications written using the
Java programming language.

JINI. Jini connection technology is based upon a single concept, that
devices should work together and simply connect to the network. This means that
there are no drivers to find, no complex proprietary software requirements, and
no cables and connectors that never seem to match. There are three Jini System
Software product offerings: the Jini System Software Starter Kit, the Jini
Technology Core Platform Compatibility Kit, and the JavaSpaces(TM) Technology
Kit. These products contain components of the Jini technology to assist
developers in creation of new Jini services.

ENTERPRISE SUPPORT, EDUCATION AND
PROFESSIONAL SERVICES

Sun is one of the largest network computing systems providers worldwide,
with over 1.2 million network systems supported by Sun's products and
technologies and with support available in over 150 countries. The
SunSpectrum(TM) support services product offerings allow customers the power and
flexibility to customize their support services contracts. Customers can choose
from four different support contract offerings that range from mission-critical
to self-support options. Each contract type is specifically designed to provide
our customers with the support they require to ensure high availability and
continuous operation.

Our educational services provide customers with innovative educational
solutions, from technical instructor led courses, to education consulting
services, to self-paced technology-based training. We specialize in UNIX and
Java technology training to assist our customers with their network computing
and Internet operations.

Finally, our professional services specialize in providing customers with
platform integration, enterprise management and operation, advanced Internet,
Java technology and Enterprise Resource Planning services. These offerings are
tailored to meet specific customer needs in training, integration and consulting
services, providing technical knowledge and network computing/ Internet
expertise.

THE SUN-NETSCAPE ALLIANCE

In March 1999, we formed the Sun-Netscape Alliance, which is focused on
providing software applications and professional services that provide
enterprise customers and service providers with the ability to put their
businesses on the Internet quickly and to scale to meet rapid increases in
demand. With products such as i-Planet remote access, the Netscape browser, web
server, application server, directory, mail and e-commerce applications, this
alliance is uniquely positioned to provide technologies and products that better
support enterprises and service providers. In addition, alliance products
support the Solaris Operating Environment, NT, HP-UX, AIX and Linux.

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TRADEMARK INFORMATION

Sun, the Sun Logo, Sun Microsystems, Sun Workshop, NFS, Jini, Netra,
SunSpectrum, Solaris, Sun StorEdge, JavaSpaces, Chorus OS, The Network is the
Computer, Solstice Backup, Sun StorEdge LibMON, Sun StorEdge Volume Manager,
MicroJava, Sun Enterprise, Java, Ultra, Ultra Enterprise, the Java Compatible
logo are trademark or registered trademarks of Sun Microsystems, Inc. in the
United States and other countries. All SPARC trademarks are used under license
and are trademarks or registered trademarks of SPARC International, Inc. in the
United States and other countries. Products bearing SPARC trademarks are based
upon an architecture developed by Sun Microsystems, Inc. UNIX is a registered
trademark in the United States and other countries, exclusively licensed through
X/Open Company Ltd.

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<PAGE> 21

DESCRIPTION OF THE NOTES

GENERAL

The following description of the particular terms of the notes supplements
and, to the extent inconsistent with the accompanying prospectus, replaces the
description of the general terms and provisions of the debt securities set forth
in the accompanying prospectus. Capitalized terms used but not defined in this
prospectus supplement or in the accompanying prospectus have the meanings
assigned to them in the form indenture between Sun and The Bank of New York, as
trustee. The following statements with respect to the notes are summaries and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the notes and the indenture and the Trust Indenture Act of 1939.
Sun will also enter into a paying agent agreement with Banque Internationale a
Luxembourg.

The notes will be issued as three series of debt securities under the
indenture.

200 NOTES

The 200 notes will constitute a series of unsecured debt securities and
will be limited in aggregate principal amount to $ . The 200 notes
will mature on , 200 and will accrue interest from ,
1999 at a rate of %.

200 NOTES

All the notes will be issued as senior unsecured general obligations of
Sun in an aggregate principal amount of $1,000,000,000 and will rank equally
with all of Sun's other senior unsecured indebtedness from time to time
outstanding. The notes will be issued only in book-entry form through the
facilities of The Depository Trust Company ("DTC"), Euroclear and Cedel, and in
denominations of $1,000 and integral multiples of $1,000. See "Description of
Book-Entry System" below.

SEMI-ANNUAL PAYMENTS

Interest on each series of notes will be payable semi-annually on
and of each year, commencing , 2000,
at the respective rate set forth on the cover page of this prospectus
supplement, to the persons in whose names the notes are registered on the
or preceding the applicable interest payment date.

The amount of interest payable for any period will be computed on the
basis of twelve 30-day months and a 360-day year and, for any period shorter
than a full six-month interest period, on the basis of the actual number of days
elapsed in that period. If any interest payment date is not a business day, then
payment of the amount payable on that date will be made on the next succeeding
day that is a business day with the same force and effect as if made on the
interest payment date, and no interest will accrue for the period from and after
the interest payment date. The term "business day" means each Monday, Tuesday,
Wednesday, Thursday and Friday that is not a day on which banking institutions
in the state of New York are authorized or obligated by law, regulation or
executive order to close.

OPTIONAL REDEMPTION

Sun may redeem all of any part of any series of notes at any time at a
price equal to the greater of:

- - 100% of the principal amount of the note to be redeemed; and

- - an amount, as determined by the quotation agent, equal to the sum of the
present

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values of the remaining scheduled payments of principal and interest on the
notes to be redeemed, not including any portion of payments of interest
accrued as of the redemption date, discounted to the redemption date on a
semi-annual basis, assuming a 360-day year comprised of twelve 30-day months,
at the adjusted treasury rate plus basis points in the case of
the 200 notes, basis points in the case of the 200 notes and
basis points in the case of the 200 notes,

plus, in each case, accrued and unpaid interest on the principal amount being
redeemed to the redemption date; provided, however, that with respect to
interest payments that are due on or prior to the relevant redemption date, Sun
will make payments of interest to the record holders of the relevant notes at
the close of business on the relevant regular record date.

"adjusted treasury rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
comparable treasury issue, assuming a price for the comparable treasury issue,
expressed as a percentage of its principal amount, equal to the comparable
treasury price for that redemption date.

"comparable treasury issue" means the United States treasury security
selected by the quotation agent as having a maturity comparable to the remaining
term of the notes of the applicable series to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of that series of notes.

"comparable treasury price" means, with respect to any redemption date,

(i) the average of the bid and asked prices for the comparable treasury
issue, expressed in each case as a percentage of its principal amount, on the
third business day preceding such redemption date, as set forth by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for the
U.S. Government Securities," or

(ii) if such release, or any successor release, is not published or does
not contain such prices on such business day, (1) the average of the reference
treasury dealer quotations for that redemption date, after excluding the highest
and lowest reference treasury dealer quotations, or (2) if the trustee obtains
fewer than four reference treasury dealer quotations for that redemption date,
the average of the reference treasury dealer quotations obtained, as determined
by the quotation agent.

"quotation agent" means the reference treasury dealer appointed by Sun.

"reference treasury dealer" means

(1) Goldman, Sachs & Co. or its successors; provided, however that if any
of them ceases to be a primary U.S. government securities dealer in New York
City (a "primary treasury dealer"), Sun will substitute for it another primary
treasury dealer, and

(2) any other primary treasury dealer(s) selected by Sun.

"reference treasury dealer quotations" means, with respect to each
reference treasury dealer and any redemption date, the average, as determined by
the quotation agent, of the bid and asked prices for the comparable treasury
issue, expressed in each case as a percentage of its principal amount, quoted in
writing to the trustee by the reference treasury dealer at 5:00 p.m. on the
third business day preceding that redemption date.

At least 30 days but not more than 60 days before the relevant redemption
date, Sun will send notice of redemption to each holder of notes to be redeemed.
If less than all of the notes of any series are to be redeemed, the Trustee will
select, by such method as it will deem fair and appropriate, the notes to be
redeemed in whole or in part.

Unless Sun defaults in payment of the redemption price, no interest will
accrue on the notes called for redemption for the period from and after the
redemption date.

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<PAGE> 23

The notes will not be entitled to any sinking fund.

EVENTS OF DEFAULT

In addition to the events of default described under "Description of the
Debt Securities -- Events of Default" in the accompanying prospectus, the
following will constitute an event of default under the indenture with respect
to each series of notes: (i) failure to make any payment at maturity, including
any applicable grace period, in respect of indebtedness, which term means
obligations (other than non-recourse obligations or the debt securities of such
series) of Sun for borrowed money or evidenced by bonds, debentures, notes or
similar instruments ("Indebtedness") in an amount in excess of $50,000,000 and
continuance of such failure or (ii) a default with respect to any Indebtedness,
which default results in the acceleration of Indebtedness in an amount in excess
of $50,000,000 without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled, in the case of
(i) or (ii) above, for a period of 30 days after written notice thereof to Sun
by the trustee or to Sun and the trustee by the holders of not less than 25% in
principal amount of debt securities of such series; provided, however, that if
any such failure, default or acceleration referred to in (i) or (ii) above shall
cease or be cured, waived, rescinded or annulled, then the event of default by
reason thereof shall be deemed likewise to have been cured.

DEFEASANCE

The defeasance and covenant defeasance provisions of the indenture
described under the caption "Description of the Debt Securities -- Satisfaction
and Discharge and Defeasance" in the accompanying prospectus will apply to the
notes.

ABSENCE OF CERTAIN COVENANTS

Except as set forth in the accompanying prospectus, Sun is not restricted
by the indenture with respect to the notes from incurring, assuming or becoming
liable for any type of debt or other obligations, from paying dividends or
making distribution on its capital stock or purchasing or redeeming its capital
stock. The indenture does not require the maintenance of any financial ratios or
specified levels of net worth or liquidity.

LISTING

Application has been made to list the notes on the Luxembourg Stock
Exchange. See "General Listing Information" below.

FORM OF THE NOTES

The notes will each be represented by one or more global securities in
registered form, without coupons (the "Global Notes"), which have been issued in
each case in a denomination equal to the outstanding principal amount of notes
represented thereby. The Global Notes will be deposited with the trustee, as
described below under "-- Description of Book-Entry System."

DESCRIPTION OF BOOK-ENTRY SYSTEM

GENERAL

The Global Notes will be deposited with the trustee as custodian for DTC
and registered in the name of Cede & Co. as nominee of DTC, for credit to the
accounts of DTC participants and indirect participants, including the Euroclear
and Cedelbank. Upon issuance of the notes, DTC, Euroclear or Cedelbank, as the
case may be, will credit on its book-entry registration and transfer system the
participants' accounts with the respective interests owned by such participants.
Ownership of a beneficial interest in a Global Note ("Book-Entry Interests") is
shown on, and the transfer of such interests will be effected only through,
records maintained by DTC, Euroclear or Cedelbank and, with respect to interests
of indirect participants, their respective participants. The laws of some
countries and some states in the United States may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge the Book-Entry Interests.

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<PAGE> 24

All interests in the notes, including those held through Euroclear or
Cedelbank, will be subject to the procedures and requirements of DTC. Those
interests, if held through Euroclear or Cedelbank, will also be subject to the
procedures and requirements of such system.

So long as DTC, or its nominee, is the registered holder of the Global
Notes, such party will be considered the sole holder of such Global Notes for
all purposes under the indenture. Except as set forth above under "-- Form of
the Notes," participants or indirect participants are not entitled to have notes
or Book-Entry Interests registered in their names, will not receive or be
entitled to receive physical delivery of notes or Book-Entry Interests in
definitive form and will not be considered the owners or holders thereof under
the indenture. Accordingly, each person owning a Book-Entry Interest must rely
on the procedures of DTC, Euroclear or Cedelbank, as the case may be, and, if
such person is not a participant in DTC, Euroclear or Cedelbank, as the case may
be, on the procedures of the participant in DTC, Euroclear or Cedelbank, as the
case may be, through which such person owns its interest, to exercise any rights
and remedies of a holder under the indenture. See "-- Action by Owners of
Book-Entry Interests" below. If any definitive notes are issued to participants
or indirect participants, they will be issued in registered form ("definitive
registered notes"), as described under "-- Form of the Notes." Unless and until
Book-Entry Interests are exchanged for definitive registered notes (as described
under "-- Form of the Notes"), the certificated depositary interest held by DTC
may not be transferred except as a whole by DTC to its nominee or by its nominee
to DTC or another nominee of DTC or by DTC or any such nominee to a successor of
DTC or a nominee of such successor.

PAYMENTS ON THE GLOBAL NOTES

Payments of any amounts owing in respect of the Global Notes will be made
through one or more paying agents appointed under the indenture (which initially
will include the trustee) to DTC, as the holder of the Global Notes. Payment to
or to the order of the holder of the Global Notes shall discharge Sun's payment
obligations in respect of the notes represented thereby. Upon receipt of any
such amounts, DTC should distribute such payments to its respective
participants. Payments of all such amounts will be made without deduction or
withholding for or on account of any present or future taxes, duties,
assessments or governmental charges of whatever nature except as may be required
by law. If withholding for taxes is required by law, such withholding will occur
in accordance with applicable law.

Under the provisions of the indenture, the holder of the Global Notes is
treated as the owner of the notes represented thereby, and Sun has no
responsibility or liability for the payment of amounts owing in respect of the
depositary interests held by DTC to owners of Book-Entry Interests represent
interests in the Global Notes. Payments by DTC participants or by Euroclear or
Cedelbank participants to owners of Book-Entry Interests held through such
participants are the responsibility of such participants as is the case with
securities held for the account of customers in bearer form or registered in
"street name".

None of Sun, the trustee or any agent of Sun or the trustee have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Book-Entry Interests or for maintaining, supervising
or reviewing any records relating to such Book-Entry Interests.

INFORMATION CONCERNING DTC, EUROCLEAR AND CEDELBANK

Sun understands as follows with respect to DTC: DTC is a limited purpose
trust issuer organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934. DTC was created to hold
securities of its participants and to

S-24
<PAGE> 25

facilitate the clearance and settlement of transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers, including
the underwriters, banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own DTC. Access
to the DTC book-entry system is also available to others, such as banks, broker-
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.

Sun understands as follows with respect to Euroclear and Cedelbank:
Euroclear and Cedelbank each hold securities for their account holders and
facilitate the clearance and settlement of securities transactions by electronic
book-entry transfer between their respective account holders, thereby
eliminating the need for physical movements of certificates and any risk from
lack of simultaneous transfers of securities.

Euroclear and Cedelbank each provide various services including
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Euroclear and Cedelbank each
also deal with domestic securities markets in several countries through
established depository and custodial relationships. The respective systems of
Euroclear and Cedelbank have established an electronic bridge between their two
systems across which their respective account holders may settle trades with
each other.

Account holders in DTC, Euroclear and Cedelbank are world-wide financial
institutions including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to both Euroclear and
Cedelbank is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.

An account holder's overall contractual relations with either Euroclear or
Cedelbank are governed by the respective rules and operating procedures of
Euroclear or Cedelbank and any applicable laws. Both Euroclear and Cedelbank act
under such rules and operating procedures only on behalf of their respective
account holders, and have no record of or relationship with persons holding
through their respective account holders.

Because DTC, Euroclear and Cedelbank can only act on behalf of
participants, who in turn act on behalf of indirect participants and certain
banks, the ability of an owner of a Book-Entry Interest to pledge such interest
to persons or entities that do not participate in the DTC, Euroclear or
Cedelbank systems, or otherwise take actions in respect of such interest, may be
limited by the lack of a definitive certificate for such interest. The laws of
some countries and some states in the United States require that certain persons
take physical delivery of securities in definitive form. Consequently, the
ability to transfer Book-Entry Interests to such persons may be limited. In
addition, beneficial owners of Book-Entry Interests through DTC, Euroclear or
Cedelbank will receive distributions attributable to the Global Notes only
through DTC, Euroclear or Cedelbank participants.

Sun understands that under existing industry practices, if either Sun or
trustee requests any action of holders of notes or if an owner of a Book-Entry
Interest desires to give instructions or take any action that a holder is
entitled to give or take under the indenture, DTC would authorize their
respective participants owning the relevant Book-Entry Interests to give
instructions or take such action, and such participants would authorize indirect
participants to give instructions or take such action or would otherwise act
upon the instructions of such indirect participants.

TRANSFERS

All transfers of Book-Entry Interests are recorded in accordance with the
book-entry system maintained by DTC pursuant to customary procedures established
by DTC and its participants.

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<PAGE> 26

ACTION BY OWNERS OF BOOK-ENTRY INTERESTS

As soon as practicable after receipt by the trustee of notice of any
solicitation of consents or request for a waiver or other action by the holders
of notes, the trustee will send to DTC a notice containing (a) such information
as is contained in such notice received by the trustee, (b) a statement that at
the close of business on a specified record date DTC will be entitled to
instruct the trustee as to the consent, waiver or other action, if any,
pertaining to such notes and (c) a statement as to the manner in which such
instructions may be given. In addition, the trustee will forward to DTC or,
based upon instructions received from DTC, to owners of Book-Entry Interests,
all materials pertaining to any such solicitation, request, offer or other
action. Upon the written request of DTC the trustee shall endeavor insofar as
practicable to take such action regarding the requested consent, waiver, offer
or other action in respect of such notes in accordance with any instructions set
forth in such request. DTC may grant proxies or otherwise authorize their
respective participants, or persons owning Book-Entry Interests through their
respective participants, to provide such instructions to the trustee so that it
may exercise any rights of a holder or take any other actions which a holder is
entitled to take under the indenture. The trustee will not exercise any
discretion in the granting of consents or waivers or the taking of any other
action relating to the indenture.

REPORTS

The trustee will immediately send to DTC a copy of any notices, reports
and other communications received relating to Sun, the notes or the Book-Entry
Interests.

SETTLEMENT

Any secondary market trading activity in the Book-Entry Interests is
expected to occur through the participants of DTC, Euroclear and Cedelbank, and
the securities custody accounts of investors will be credited with their
holdings against payment in same-day funds on the settlement date.

CLEARANCE THROUGH CEDELBANK AND EUROCLEAR

Listed below is the Cedelbank and Euroclear common code, ISIN and CUSIP
number of each of the series of notes.

<TABLE>
<CAPTION>
EUROCLEAR/CEDEL
COMMON CODE ISIN CUSIP
--------------- ---- -----
<S> <C> <C> <C>
200 Notes
200 Notes
200 Notes
</TABLE>

GENERAL LISTING INFORMATION

1. Application has been made to list the notes on the Luxembourg Stock
Exchange. However, Sun does not expect to receive approval of its application
from the Luxembourg Stock Exchange prior to the delivery date of the notes.
Furthermore, Sun cannot guarantee that approval for listing of the notes will be
received at all. The certified Certificate of Incorporation of Sun and the legal
notice relating to the issue of the notes will be deposited prior to any listing
with the Chief Registrar of the District Court in Luxembourg (Greffier en Chef
du Tribunal d'Arrondissement a Luxembourg), where such documents are available
for inspection and where copies thereof can be obtained upon request. As long as
the notes are listed on the Luxembourg Stock Exchange, an agent for making
payments on, and transfers of, notes will be maintained in Luxembourg.

2. The consolidated financial statements of Sun as of June 30, 1998 and
1997, and for each of the three years in the period ended June 30, 1998 have
been prepared in accordance with United States generally accepted accounting
principles and have been audited by Ernst & Young LLP in accordance with United
States generally accepted accounting principals ("U.S. GAAP"). On June 14, 1999
Ernst & Young LLP gave

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<PAGE> 27

consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-81101) and related prospectus of Sun, of their reports dated July
15, 1998 with respect to the consolidated financial statements of Sun.

3. For so long as the notes are listed on the Luxembourg Stock Exchange
and the rules of such exchange so require, copies of the following documents may
be inspected at the specified office of the paying agent and transfer agent in
Luxembourg:

- Certified Certificate of Incorporation of the Sun;

- paying agency agreement;

- the indenture relating to the notes, which include the forms of the note
certificates.

In addition, copies of the most recent annual audited consolidated
financial statements of Sun for the preceding financial year, and any interim
unaudited consolidated quarterly financial statements published by Sun will be
available for collection at the specified office of the paying agent in
Luxembourg for so long as the notes are listed on the Luxembourg Stock Exchange
and the rules of such exchange so require. Sun publishes only audited annual and
unaudited quarterly financial statements on a consolidated basis.

4. Except as disclosed in this document, Sun represents that there has
been no material adverse change in its financial position since March 28, 1999.

5. Except as disclosed in this document, Sun is not involved in any
litigation or arbitration proceedings relating to claims or amounts which are
material in the context of the issue of the notes nor (so far as Sun is aware)
is any such litigation or arbitration pending or threatened.

6. The issuance of the notes was authorized by resolutions of Sun's Boards
of Directors passed on June 16, 1999.

7. The following persons are members of the Board of Directors of Sun:
Scott G. McNealy, James L. Barksdale, L. John Doerr, Judith L. Estrin, Robert L.
Fisher, Robert L. Long, M. Kenneth Oshman and A. Michael Spence.

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<PAGE> 28

UNDERWRITING

Sun and the underwriters for the offering named below have entered into an
underwriting agreement and a pricing agreement with respect to the notes.
Subject to certain conditions each underwriter has severally agreed to purchase
the principal amount of notes indicated in the following table.

<TABLE>
<CAPTION>
Principal Principal Principal
Amount of Amount of Amount of
Underwriter 200 Notes 200 Notes 200 Notes
----------- --------- --------- ---------
<S> <C> <C> <C>
Goldman, Sachs & Co................................ $ $ $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................
Salomon Smith Barney Inc...........................
ABN AMRO Incorporated..............................
Banc of America Securities LLC.....................
Chase Securities Inc. .............................
J.P. Morgan Securities Inc.........................
---------- ---------- ----------
Total............................................ $ $ $
========== ========== ==========
</TABLE>

----------------------

Notes sold by the underwriters to the public will initially be offered at
the initial public offering prices set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to %, % and
% of the principal amount of the 200 notes, 200 notes and the 200 notes,
respectively. Any such securities dealers may resell any notes purchased from
the underwriters to certain other brokers or dealers as a discount from the
initial public offering price of up to %, % and % of the
principal amount of the 200 notes, 200 notes and the 200 notes, respectively.
If all the notes are not sold at the initial offering prices, the underwriters
may change the offering prices and the other selling terms.

The notes are new issues of securities with no established trading market.
Sun has been advised by the underwriters that the underwriters intend to make a
market in the notes, but they are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes.

In connection with the offering, the underwriters may purchase and sell
the notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater aggregate
principal amount of notes than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the notes
while the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the underwriters have repurchased notes sold by
or for the account of that underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market prices of the notes. As a result, the prices of the notes may
be higher than the prices that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected in the over-the-counter market or
otherwise.

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<PAGE> 29

Sun estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .

Sun has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

Certain of the underwriters or their affiliates from time to time have
performed, and certain of them continue to perform, various investment and
commercial banking services for Sun.

LEGAL MATTERS

Certain legal matters relating to the validity of the notes will be passed
upon for Sun by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California, and for the underwriters by Shearman & Sterling, Menlo Park,
California.

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<PAGE> 30

PRINCIPAL EXECUTIVE OFFICE OF SUN MICROSYSTEMS, INC.

Sun Microsystems, Inc.
901 San Antonio Road
Palo Alto, California 94303

TRUSTEE, REGISTRAR, PRINCIPAL PAYING AND TRANSFER AGENT

The Bank of New York
101 Barclay Street
New York, New York 10286

LISTING AGENT, PAYING AND TRANSFER AGENT

Banque Internationale a Luxembourg
69, route d'Esch
L-1470 Luxembourg

<TABLE>
<S> <C>
LEGAL ADVISORS LEGAL ADVISORS
TO SUN TO THE UNDERWRITERS
Wilson Sonsini Goodrich & Rosati, P.C. Shearman & Sterling
650 Page Mill Road 1550 El Camino Real, Suite 100
Palo Alto, California 94304 Menlo Park, California 94025
</TABLE>

INDEPENDENT AUDITORS

Ernst & Young LLP
55 Almaden Boulevard
San Jose, CA 94113

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<PAGE> 31

PROSPECTUS

$4,000,000,000

SUN MICROSYSTEMS, INC.

BY THIS PROSPECTUS, WE MAY OFFER --

COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES

SEE "RISK FACTORS" ON PAGE 4 FOR INFORMATION YOU SHOULD CONSIDER BEFORE
BUYING THE SECURITIES.

-------------------------

We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest.

-------------------------

This prospectus may not be used to offer and sell securities unless
accompanied by a prospectus supplement.

-------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

This prospectus is dated July 14, 1999
<PAGE> 32

SUMMARY

This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may,
from time to time, sell in one or more offerings up to a total dollar amount of
$4,000,000,000 of any combination of the following securities:

- shares of our common stock,

- shares of our preferred stock, and

- our debt securities.

This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering, including the specific amounts, prices and terms of the securities
offered. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described below under
the heading "Where You Can Find More Information."

SUN MICROSYSTEMS, INC.

We were originally incorporated in California in February 1982. In
September 1986, we were reincorporated in Delaware. Our principal executive
offices are located at 901 San Antonio Road, Palo Alto, California 94303. Our
telephone number is (650) 960-1300.

COMMON STOCK

We may issue shares of common stock. Common stockholders are entitled to
receive dividends declared by the Board of Directors, subject to rights of
preferred stock holders. Currently, we do not pay a dividend. Each holder of
common stock is entitled to one vote per share. The holders of common stock have
no preemptive rights.

PREFERRED STOCK

We may issue up to 10,000,000 shares of preferred stock under our
certificate of incorporation, without further stockholder action, in one or more
series. We will determine the dividend, voting, and conversion rights, and other
provisions at the time of sale.

DEBT SECURITIES

We may offer unsecured general obligations in the form of either senior or
subordinated debt. The senior debt securities and the subordinated debt
securities are together referred to in this prospectus as the "debt securities".
The senior debt securities will have the same rank as all of our other
unsecured, unsubordinated debt. The subordinated debt securities will be
entitled to payment only after payment on our senior debt. Senior debt generally
includes all indebtedness for money borrowed by us, except indebtedness that is
stated to be not senior to, or to have the same rank as, or is expressly junior
to the subordinated debt securities.

The senior and subordinated debt will be issued under separate indentures
between us and The Bank of New York, as trustee. We have summarized the general
features of the debt from the indentures. We encourage you to read the
indentures which are exhibits to our Registration Statement No. (333-81101) and
our annual report on Form 10-K, and quarterly reports on Form 10-Q, in each
case, as amended. Instructions on how you can get copies of these documents are
provided below under the heading "Where You Can Find More Information."
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<PAGE> 33

GENERAL INDENTURE PROVISIONS THAT APPLY TO SENIOR AND SUBORDINATED DEBT

- Neither indenture limits the amount of debt that we may issue or provides
holders any protection should there be a highly leveraged transaction
involving our company.

- The indentures generally allow us to merge or to consolidate with another
U.S. company or convey, transfer or lease our properties and assets
substantially as an entirety to another U.S. company, so long as the
successor assumes our obligations under the indentures and immediately
after giving effect to the transaction we are not in default under the
indentures. If these events occur, the other company will be required to
assume our responsibilities on the debt, and we will be released from all
liabilities and obligations, except in the case of a lease.

- The indentures provide that holders of a majority of the total principal
amount of the debt outstanding in any series may vote to change our
obligations or your rights concerning the debt. But to change the payment
of principal, interest, or adversely effect the right to convert or
certain other matters, every holder in that series must consent.

- We may discharge the indentures and defease restrictive covenants by
depositing sufficient funds with the trustee to pay the obligations when
due, as long as we are not in default under the indentures at that time.
All amounts due to you on the debt would be paid by the trustee from the
deposited funds.

EVENTS OF DEFAULT

The following are the events of default under the indentures:

- Principal not paid when due,

- Sinking fund payment not made when due,

- Failure to pay interest for 30 days,

- Covenants not performed for 90 days after notice,

- Bankruptcy, insolvency or reorganization, and

- Any other event of default in the indenture.

REMEDY

Upon an event of default, other than a bankruptcy, insolvency or
reorganization, the trustee or holders of 25% of the principal amount
outstanding in a series may declare principal immediately payable. However, the
holders of a majority in principal amount may rescind this action.

GENERAL INDENTURE PROVISIONS THAT APPLY ONLY TO SENIOR DEBT SECURITIES

The indenture relating to the senior debt securities contains covenants
restricting our ability to incur secured debt and our ability to sell or
transfer our property to a lender or investor, which then, either directly or
indirectly, leases the property back to us.

GENERAL INDENTURE PROVISIONS THAT APPLY ONLY TO SUBORDINATED DEBT SECURITIES

The subordinated debt securities will be subordinated to all senior debt.
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<PAGE> 34

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy materials that we have filed
with the SEC, including the registration statement, at the following SEC
reference rooms:

<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, DC 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>

Our common stock is quoted on the Nasdaq National Market under the symbol
"SUNW," and our SEC filings can also be read at the following Nasdaq address:

Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006

The SEC allows us to "incorporate by reference" the information we filed
with them, which means that we can disclose important information by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below:

- Our Annual Report on Form 10-K for our fiscal year ended June 30, 1998,
filed with the SEC on September 25, 1998, which we amended by filing an
amendment on Form 10-K/A with the SEC on June 15, 1999.

- Our Quarterly Reports on Form 10-Q for the:

- quarter ended September 27, 1998, filed with the SEC on November 10,
1998;

- quarter ended December 27, 1998, filed with the SEC on February 9,
1999, which we amended by filing an amendment on Form 10-Q/A with the
SEC on June 15, 1999; and

- quarter ended March 28, 1999, filed with the SEC on May 5, 1999.

- The description of our common stock contained in our registration
statement on Form 8-A, filed with the SEC on October 24, 1986, including
any amendments or reports filed for the purpose of updating that
description.

- The description of our share purchase rights contained in our
registration statement on Form 8-A filed with the SEC on May 22, 1999,
and any amendments or reports filed for purpose of updating that
description.

In addition to the documents listed above, we also incorporate by reference
any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, until we have sold all of the offered
securities to which this prospectus relates or the offering is otherwise
terminated.

You may request a copy of these filings, at no cost, by writing us at the
following address or telephoning us at (650) 960-1300 between 8:00 a.m. and 5:00
p.m., California local time:

Investor Relations Department
Sun Microsystems, Inc.
901 San Antonio Road
Palo Alto, California 94303

You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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<PAGE> 35

RISK FACTORS

You should consider carefully the specific risks set forth under the
caption "Risk Factors" in the prospectus supplement before making an investment
decision.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED REVENUES, REDUCED MARGINS, REDUCED LEVELS OF
PROFITABILITY AND LOSS OF MARKET SHARE.

We compete in the hardware and software products and services markets.
These markets are intensely competitive. If we fail to compete successfully in
these markets, the demand for our products would decrease. Any reduction in
demand could lead to a decrease in the prices of our products, fewer customer
orders, reduced revenues, reduced margins, reduced levels of profitability and
loss of market share. These competitive pressures could seriously harm our
business and operating results.

Our competitors are some of the largest, most successful companies in the
world. They include HP, IBM, Compaq and EMC. Our future competitive performance
depends on a number of factors, including our ability to:

- continually develop and introduce new products and services with better
prices and performance than offered by our competitors;

- offer a wide range of products and solutions from small single-processor
systems to large complex enterprise-level systems;

- offer solutions to customers that operate effectively within a computing
environment that includes hardware and software from multiple vendors;

- offer products that are reliable and that ensure the security of data and
information;

- create products for which third party software vendors will develop a
wide range of applications; and

- offer high quality products and services.

We also compete with systems manufacturers and resellers of systems based
on microprocessors from Intel and Windows NT operating system software from
Microsoft. These competitors include Dell, HP and Compaq, in addition to Intel
and Microsoft. This competition creates increased pressure, including pricing
pressure, on our workstation and lower-end server product lines. We expect this
competitive pressure to intensify considerably during our fiscal year 2000 with
the anticipated releases of new software products from Microsoft and new
microprocessors from Intel.

The computer systems that we sell are made up of many products and
components, including workstations, servers, storage products, microprocessors,
the Solaris(TM) operating system and other software products. In addition, we
sell some of these components separately and as add-ons to installed systems. If
we are unable to offer products and services that compete successfully with the
products and services offered by our competitors or that meet the complex needs
of our customers, our business and operating results could be seriously harmed.
In addition, if in responding to competitive pressures, we are forced to lower
the prices of our products and services and we are unable to reduce our
component costs or improve operating efficiencies, our business and operating
results would be seriously harmed.

Over the last two years, we have invested significantly in our storage
products business with a view to increasing the sales of these products both on
a stand-alone basis to customers using the systems of our competitors and as
part of the systems that we sell.

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<PAGE> 36

The intelligent storage products business is intensely competitive. EMC is
currently the leader in this market. To the extent we are unable to penetrate
this market and compete effectively, our business and operating results could be
seriously harmed. In addition, we will be making significant investments over
the next few years to develop, market and sell software products under our
recent alliance with AOL and have agreed to significant minimum revenue
commitments. These alliance products are targeted at the e-commerce market and
are strategic to our ability to successfully compete in this market. If we are
unable to successfully compete in this market, our business and operating
results could be seriously harmed.

THE PRODUCTS WE MAKE ARE VERY COMPLEX AND IF WE ARE UNABLE TO RAPIDLY AND
SUCCESSFULLY DEVELOP AND INTRODUCE NEW PRODUCTS, WE WILL NOT BE ABLE TO SATISFY
CUSTOMER DEMAND.

We operate in a highly competitive, quickly changing environment, and our
future success depends on our ability to develop and introduce new products that
our customers choose to buy. If we are unable to develop new products, our
business and operating results would be seriously harmed. We must quickly
develop, introduce and deliver in quantity new complex systems, software and
hardware products and components including our Ultra SPARC(TM) microprocessors,
the Solaris operating system, our intelligent storage products and other
software products, such as those products under development or to be developed
under our recent alliance with AOL. The development process for these
complicated products is very uncertain. It requires high levels of innovation
from both our product designers and our suppliers of the components used in our
products. The development process is also lengthy and costly. If we fail to
accurately anticipate our customers' needs and technological trends or are
otherwise unable to complete the development of a product on a timely basis, we
will be unable to introduce new products into the market on a timely basis, if
at all, and our business and operating results would be adversely affected. In
addition, the successful development of software products under our alliance
with AOL depends on many factors, including our ability to work effectively
within the alliance on complex product development and any encumbrances that may
arise from time to time that prevent us from developing, marketing or selling
these alliance software products. If we are unable to successfully develop or
market or sell the alliance software products, our business and operating
results could be seriously harmed.

The manufacture and introduction of our new hardware and software products
is also a complicated process. Once we have developed a new product we face the
following challenges in the manufacturing process:

- We must be able to manufacture new products in high enough volumes so
that we can have an adequate supply of new products to meet customer
demand;

- We must be able to manufacture the new products at acceptable costs. This
requires us to be able to accurately forecast customer demand so that we
can procure the appropriate components at optimal costs. Forecasting
demand requires us to predict order volumes, the correct mixes of our
software and hardware products and the correct configurations of these
products;

- We must manage new product introductions so that we can minimize the
impact of customers delaying purchases of existing products in
anticipation of the new product release. We must also try to reduce the
levels of older product and component inventories to minimize inventory
write-offs; and

- We may also decide to adjust prices of our existing products during this
process in order to try to increase customer demand for these products.
If we are introducing

5
<PAGE> 37

new products at the same time or shortly after the price adjustment, this
will complicate our ability to anticipate customer demand for our new
products.

If we were unable to timely develop, manufacture and introduce new products in
sufficient quantity to meet customer demand at acceptable costs or if we were
unable to correctly anticipate customer demand for our new products, our
business and operating results could be significantly harmed.

OUR RELIANCE ON SINGLE SOURCE SUPPLIERS COULD DELAY PRODUCT SHIPMENTS AND
INCREASE OUR COSTS.

We depend on many suppliers for the necessary parts and components to
manufacture our products. There are a number of vendors producing the parts and
components that we need. However, there are some components that can only be
purchased from a single vendor due to price, quality or technology reasons. For
example, we depend on Sony for various monitors and on Texas Instruments for our
SPARC microprocessors. If we were unable to purchase the necessary parts and
components from a particular vendor and we had to find a new supplier for such
parts and components, our new and existing product shipments could be delayed,
severely affecting our business and operating results.

OUR FUTURE OPERATING RESULTS DEPEND ON OUR ABILITY TO PURCHASE A SUFFICIENT
AMOUNT OF COMPONENTS TO MEET THE DEMANDS OF OUR CUSTOMERS.

We depend heavily on our suppliers to timely design, manufacture and
deliver the necessary components for our products. While many of the components
we purchase are standard, we do purchase some components, specifically color
monitors and custom memory integrated circuits such as SRAMS and VRAMS, that
require long lead times to manufacture and deliver. Long lead times make it
difficult for us to plan component inventory levels in order to meet the
customer demand for our products. In addition, in the past, we have experienced
shortages in certain of our components (specifically DRAMS and SRAMS). If a
component delivery from a supplier is delayed, if we experience a shortage in
one or more components or if we are unable to provide for adequate levels of
component inventory our new and existing product shipments could be delayed and
our business and operating results could suffer.

SINCE WE ORDER OUR COMPONENTS (AND IN SOME CASES COMMIT TO PURCHASE) FROM
SUPPLIERS IN ADVANCE OF RECEIPT OF CUSTOMER ORDERS FOR OUR PRODUCTS WHICH
INCLUDE THESE COMPONENTS, WE FACE A SUBSTANTIAL INVENTORY RISK.

As part of our component inventory planning, we frequently pay certain
suppliers well in advance of receipt of customer orders. For example, we often
enter into noncancelable purchase commitments with vendors early in the
manufacturing process of our microprocessors to make sure we have enough of
these components for our new products to meet customer demand. Because the
design and manufacturing process for these components is very complicated it is
possible that we could experience a design or manufacturing flaw that could
delay or even prevent the production of the components for which we have
previously committed to pay. We also face the risk of ordering too many
components, or conversely, not enough components, since the orders are based on
the forecasts of customer orders rather than actual orders. If we cannot change
or be released from the noncancelable purchase commitments, we could incur
significant costs from the purchase of unusable components, due to a delay in
the production of the components or as a result of inaccurately predicting
component orders in advance of customer orders. Our business and operating
results could be seriously harmed as a result of these increased costs.

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<PAGE> 38

DELAYS IN PRODUCT DEVELOPMENT OR CUSTOMER ACCEPTANCE AND IMPLEMENTATION OF NEW
PRODUCTS AND TECHNOLOGIES COULD SERIOUSLY HARM OUR BUSINESS.

Delays in product development and customer acceptance and implementation of
new products could seriously harm our business. Delays in the development and
introduction of our products may occur for various reasons including the
following:

- Delays in software development could delay shipments of related new
hardware products. Generally, the computer systems we sell to customers
incorporate hardware and software products that we sell, such as the
UltraSPARC microprocessor, the Solaris operating system and intelligent
storage products. Any delay in the development of the software and
hardware included in our systems, could delay our shipment of these
systems.

- If customers decided to delay the adoption and implementation of new
releases of our Solaris operating system this could also delay customer
acceptance of new hardware products tied to that release. Adopting a new
release of an operating system requires a great deal of time and money
for a customer to convert its systems to the new release. The customer
must also work with software vendors who port their software applications
to the new operating system and make sure these applications will run on
the new operating system. As a result, customers may decide to delay
their adoption of a new release of an operating system because of the
cost of a new system and the effort involved to implement it. Also,
customers may wait to implement new systems until after January 1, 2000
so that there is less likelihood of Year 2000 computer problems.

IF WE ARE UNABLE TO CONTINUE GENERATING SUBSTANTIAL REVENUES FROM INTERNATIONAL
SALES OUR BUSINESS COULD BE SUBSTANTIALLY HARMED.

Currently, approximately half of our revenues come from international
sales. Our ability to sell our products internationally is subject to the
following risks:

- general economic and political conditions in each country could adversely
affect demand for our products and services in these markets, as recently
occurred in certain Asian and Latin American markets.

- currency exchange rate fluctuations could result in lower demand for our
products as well as currency translation losses.

- changes to and compliance with a variety of foreign laws and regulations
may increase our cost of doing business in these jurisdictions.

- trade protection measures and import and export licensing requirements
subject us to additional regulation, may prevent us from shipping
products to a particular market and increase our operating costs.

WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE FOR A NUMBER
OF REASONS.

Future operating results will continue to be subject to quarterly
fluctuations based on a wide variety of factors including:

- Seasonality. Our operating results usually fluctuate downward in the
first and third quarters of each fiscal year due to customer buying
patterns for hardware and software products and services.

- Increases in Operating Expenses. Our operating expenses will continue to
increase as we continue to expand our operations. Our operating results
could suffer if our revenues do not increase at least as fast as our
expenses.
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<PAGE> 39

- Acquisitions/Alliances. If, in the future, we acquire technologies,
products or businesses, or we form alliances with companies requiring
technology investments or revenue commitments (such as our recent
alliance with AOL), we will face a number of risks to our business. The
risks we may encounter include those associated with integrating or
co-managing operations, personnel, and technologies acquired or licensed,
and the potential for unknown liabilities of the acquired or combined
business. Also, we will include amortization expense of acquired
intangible assets in our financial statements for several years following
these acquisitions. Our business and operating results on a quarterly
basis could be harmed if our acquisition or alliance activities are not
successful.

- Significant Customers. Only one of our customers accounted for more than
10% of our revenues in fiscal 1998. Sales to this customer accounted for
approximately 14% of our fiscal 1998 revenues. Our business could suffer
if this customer or another significant customer terminated its business
relationship with us or significantly reduced the amount of business it
did with us.

OUR FAILURE OR THE FAILURE OF OUR BUSINESS PARTNERS AND CUSTOMERS TO BE YEAR
2000 COMPLIANT COULD HARM OUR BUSINESS.

- We cannot be sure that we will be able to successfully modify on a timely
basis our products, services and systems to comply with Year 2000
requirements. Our business could suffer if we fail to make our products
and services Year 2000 compliant in time.

- We cannot be sure that our current products do not contain undetected
errors or defects associated with Year 2000 functions that may result in
material costs to us.

- Our expenses may increase if we need to upgrade or perform other
remediation on products that our customers are using that are not Year
2000 compliant. However, we do not believe we are legally responsible,
other than as provided in our limited warranties, for the costs incurred
by our customers to become Year 2000 compliant.

- We are in the process of developing contingency plans to deal with
potential Year 2000 problems that we are aware of at this time. We hope
that these contingency plans will be completed during the first quarter
of our fiscal year 2000. If these plans are not timely completed or if
they are not successful or if new Year 2000 problems not covered by our
contingency plans emerge, our business and operating results may be
seriously harmed.

- Our business may suffer if customers become dissatisfied with our
products and services as a result of Year 2000 issues.

- Our business could be harmed if customers delay purchasing our products
during the first half of our fiscal year 2000 because of year 2000
concerns, or if our customers are unable to conduct their business or are
prevented from placing orders or paying us because of their own year 2000
problem.

- Our business could suffer if any of our suppliers or the suppliers of
others with whom we do business with cannot timely provide us with
products, components, services or systems that meet the Year 2000
requirements. A reasonably likely worst case scenario would be if one of
our major vendors experienced a material disruption in business, which
caused us to experience a material disruption in our business.

- If either our internal systems or the internal systems, products or
services of one or more of our major vendors (including banks, energy
suppliers and transportation providers) fail to achieve Year 2000
compliance, our business could be harmed.

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<PAGE> 40

- A significant amount of litigation may arise out of Year 2000 compliance
issues and we cannot be sure about the extent to which we may be affected
by any of this litigation. Even though we do not believe that we are
legally responsible for our customers' Year 2000 compliance obligations,
it is unclear whether different governments or governmental agencies may
decide to allocate liability relating to Year 2000 compliance to us
without regard to specific warranties or warranty disclaimers. Our
business could suffer in any given quarter if any liability is allocated
to us.

- We do not know how customer spending patterns may be affected by Year
2000 issues. We believe, however, that customers will focus on preparing
their businesses for the Year 2000 and that their capital budgets will be
spent in large part on remediation efforts, potentially delaying the
purchase and implementation of new systems, and thereby creating less
demand for our products and services.

A significant disruption of our financial management and control systems or
a lengthy interruption in our operations caused by a Year 2000 related issue
could result in a material adverse impact on our operating results and financial
condition. In addition, it is possible that a supplier's failure to ensure Year
2000 capability or our customer's concerns about Year 2000 readiness of our
products would have a material adverse effect on our results of operations.

OUR ACQUISITION AND ALLIANCE ACTIVITIES COULD DISRUPT OUR ONGOING BUSINESS.

We intend to continue to make investments in companies, products and
technologies, either through acquisitions or investment alliances. For example,
we have purchased several companies in the past and formed alliances, including
our recent alliance with AOL. Acquisitions and alliance activities often involve
risks, including:

- we may experience difficulty in assimilating the acquired operations and
employees;

- we may experience difficulty in managing product co-development
activities with our alliance partners.

- we may be unable to retain the key employees of the acquired operation;

- the acquisition or investment may disrupt our ongoing business;

- we may not be able to incorporate successfully the acquired technology
and operations into our business and maintain uniform standards,
controls, policies and procedures; and

- we may lack the experience to enter into new markets, products or
technologies.

Some of these factors are beyond our control. Failure to manage these
alliance activities effectively and to integrate acquisitions would affect our
operating results or financial condition.

WE DEPEND ON KEY EMPLOYEES AND FACE COMPETITION IN HIRING AND RETAINING
QUALIFIED EMPLOYEES.

Our employees are vital to our success, and our key management, engineering
and other employees are difficult to replace. We generally do not have
employment contracts with our key employees. Further, we do not maintain key
person life insurance on any of our employees. The expansion of high technology
companies in Silicon Valley and Colorado, as well as many other cities, has
increased demand and competition for qualified personnel. We may not be able to
attract, assimilate or retain additional highly qualified employees in the
future. These factors could harm our business.

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<PAGE> 41

USE OF PROCEEDS

Unless otherwise indicated in the applicable prospectus supplement, we
anticipate that any net proceeds from the sale of securities offered by this
prospectus will be used to fund expansion of our business, including for:

- additional working capital,

- capital expenditures,

- acquisitions of products, technologies and businesses, and

- general corporate purposes.

When we offer a particular series of securities offered by this prospectus,
the prospectus supplement relating to that offering will set forth the intended
use of the net proceeds received from that offering. Pending the application of
the net proceeds, we expect to invest the proceeds from the sale of offered
securities in interest-bearing securities.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges for each of the periods indicated is
as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, ---------------------
------------------------------------ MARCH 29, MARCH 29,
1994 1995 1996 1997 1998 1998 1999
---- ----- ----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges...... 5.6x 11.3x 15.1x 21.4x 16.6x 14.7x 17.6x
</TABLE>

These computations include us and our consolidated subsidiaries. For these
ratios, "earnings" represents income before taxes plus fixed charges. Fixed
charges consists of (1) interest expense discount and expense, (2) capitalized
interest and (3) an interest factor attributable to rentals.

DESCRIPTION OF THE DEBT SECURITIES

The debt securities will either be our senior debt securities or our
subordinated debt securities. The debt securities will be issued under one or
more separate indentures between us and The Bank of New York, as trustee. Senior
debt securities will be issued under a senior indenture and subordinated debt
securities will be issued under a subordinated indenture. Together, the senior
indenture and subordinated indenture are called indentures. The prospectus,
together with its prospectus supplement, will describe all the material terms of
a particular series of debt securities.

The following is a summary of the most important provisions and definitions
of the indentures. For additional information, you should look at the applicable
indenture that is filed as an exhibit to the registration statement which
includes this prospectus. In this description of the debt securities, the words
"Sun", "we", "us" or "our" refer only to Sun Microsystems, Inc. and not to any
of our subsidiaries.

GENERAL

Debt securities may be issued in separate series without limitation as to
aggregate principal amount. We may specify a maximum aggregate principal amount
for the debt securities of any series. We are not limited as to the amount of
debt securities we may issue under the indentures.

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<PAGE> 42

The prospectus supplement will set forth:

- whether the debt securities are senior or subordinated,

- the offering price,

- the title,

- any limit on the aggregate principal amount,

- the person who shall be entitled to receive interest, if other than the
record holder on the record date,

- the date the principal will be payable,

- the interest rate, if any, the date interest will accrue, the interest
payment dates and the regular record dates,

- the place where payments shall be made,

- any mandatory or optional redemption provisions,

- if applicable, the method for determining how principal, premium, if any,
or interest will be calculated by reference to an index or formula,

- if other than U.S. currency, the currency or currency units in which
principal, premium, if any, or interest will be payable and whether we or
the holder may elect payment to be made in a different currency,

- the portion of the principal amount that will be payable upon
acceleration of stated maturity, if other than the entire principal
amount,

- if the principal amount payable at stated maturity will not be
determinable as of any date prior to stated maturity, the amount which
will be deemed to be the principal amount,

- any defeasance provisions if different from those described below under
"Satisfaction and Discharge -- Defeasance,"

- any conversion or exchange provisions,

- whether the debt securities will be issuable in the form of a global
security,

- any subordination provisions if different from those described below
under "Subordinated Debt Securities,"

- any deletions of, or changes or additions to, the events of default or
covenants, and

- any other specific terms of such debt securities.

Unless otherwise specified in the prospectus supplement:

- the debt securities will be registered debt securities; and

- registered debt securities denominated in U.S. dollars will be issued in
denominations of $1,000 or an integral multiple of $1,000.

Debt securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at time of
issuance is below market rates.

EXCHANGE AND TRANSFER

Debt securities may be transferred or exchanged at the office of the
security registrar or at the office of any transfer agent designated by us. We
will not impose a service charge for any transfer or exchange, but we may
require holders to pay any tax or other governmental charges associated with any
transfer or exchange.

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<PAGE> 43

In the event of any potential redemption of debt securities of any series,
we will not be required to:

- issue, register the transfer of, or exchange, any debt security of that
series during a period beginning at the opening of business 15 days
before the day of mailing of a notice of redemption and ending at the
close of business on the day of the mailing, or

- register the transfer of or exchange any debt security of that series
selected for redemption, in whole or in part, except the unredeemed
portion being redeemed in part.

We have initially appointed the trustee as the security registrar. Any
transfer agent, in addition to the security registrar, initially designated by
us will be named in the prospectus supplement. We may designate additional
transfer agents or change transfer agents or change the office of the transfer
agent. However, we will be required to maintain a transfer agent in each place
of payment for the debt securities of each series.

GLOBAL SECURITIES

The debt securities of any series may be represented, in whole or in part,
by one or more global securities. Each global security will:

- be registered in the name of a depositary that we will identify in a
prospectus supplement,

- be deposited with the depositary or nominee or custodian, and

- bear any required legends.

No global security may be exchanged in whole or in part for debt securities
registered in the name of any person other than the depositary or any nominee
unless:

- the depositary has notified us that it is unwilling or unable to continue
as depositary or has ceased to be qualified to act as depositary,

- an event of default is continuing, or

- any other circumstances described in a prospectus supplement.

As long as the depositary, or its nominee, is the registered owner of a
global security, the depositary or nominee will be considered the sole owner and
holder of the debt securities represented by the global security for all
purposes under the indentures. Except in the above limited circumstances, owners
of beneficial interests in a global security will not be:

- entitled to have the debt securities registered in their names,

- entitled to physical delivery of certificated debt securities, and

- considered to be holders of those debt securities under the indenture.

Payments on a global security will be made to the depositary or its nominee
as the holder of the global security. Some jurisdictions have laws that require
that certain purchasers of securities take physical delivery of such securities
in definitive form. These laws may impair the ability to transfer beneficial
interests in a global security.

Institutions that have accounts with the depositary or its nominee are
referred to as "participants." Ownership of beneficial interests in a global
security will be limited to participants and to persons that may hold beneficial
interests through participants. The depositary will credit, on its book-entry
registration and transfer system, the respective

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<PAGE> 44

principal amounts of debt securities represented by the global security to the
accounts of its participants.

Ownership of beneficial interests in a global security will be shown on and
effected through records maintained by the depositary, with respect to
participants' interests, or any participant, with respect to interests of
persons held by participants on their behalf.

Payments, transfers and exchanges relating to beneficial interests in a
global security will be subject to policies and procedures of the depositary.
The depositary's policies and procedures may change from time to time. Neither
we nor the trustee will have any responsibility or liability for the
depositary's or any participant's records with respect to beneficial interests
in a global security.

PAYMENT AND PAYING AGENTS

The provisions of this paragraph will apply to the debt securities unless
otherwise indicated in the prospectus supplement. Payment of interest on a debt
security on any interest payment date will be made to the person in whose name
the debt security is registered at the close of business on the regular record
date. Payment on debt securities of a particular series will be payable at the
office of a paying agent or paying agents designated by us. However, at our
option, we may pay interest by mailing a check to the record holder. The
corporate trust office will be designated as our sole paying agent.

We may also name any other paying agents in the prospectus supplement. We
may designate additional paying agents, change paying agents or change the
office of any paying agent. However, we will be required to maintain a paying
agent in each place of payment for the debt securities of a particular series.

All moneys paid by us to a paying agent for payment on any debt security
which remain unclaimed for a period ending the earlier of:

- 10 business days prior to the date the money would be turned over to the
state, or

- at the end of two years after such payment was due

will be repaid to us. Thereafter, the holder may look only to Sun for such
payment.

CONSOLIDATION, MERGER AND SALE OF ASSETS

We may not consolidate with or merge into any other person, in a
transaction in which we are not the surviving corporation, or convey, transfer
or lease our properties and assets substantially as an entirety to, any person,
unless:

- the successor, if any, is a U.S. corporation, limited liability company,
partnership, trust or other business entity,

- the successor assumes our obligations on the debt securities and under
the indentures,

- immediately after giving effect to the transaction, no default or event
of default shall have occurred and be continuing, and

- certain other conditions are met.

EVENTS OF DEFAULT

Each indenture defines an event of default with respect to any series of
debt securities as one or more of the following events:

(1) failure to pay principal of or any premium on any debt security of
that series when due,

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<PAGE> 45

(2) failure to pay any interest on any debt security of that series
for 30 days when due,

(3) failure to deposit any sinking fund payment when due,

(4) failure to perform any other covenant in the indenture continued
for 90 days after being given the notice required in the indenture,

(5) our bankruptcy, insolvency or reorganization, and

(6) any other event of default specified in the prospectus supplement.

An event of default of one series of debt securities is not necessarily an
event of default for any other series of debt securities.

If an event of default, other than an event of default described in clause
(5) above, occurs and continues, either the trustee or the holders of at least
25% in aggregate principal amount of the outstanding securities of that series
may declare the principal amount of the debt securities of that series to be due
and payable immediately. If an event of default described in clause (5) above
occurs, the principal amount of all the debt securities of that series, will
automatically become immediately due and payable. Any payment by us on the
subordinated debt securities following any acceleration will be subject to the
subordination provisions described below under "Subordinated Debt Securities."

After acceleration the holders of a majority in aggregate principal amount
of the outstanding securities of that series may, under certain circumstances,
rescind and annul such acceleration if all events of default, other than the
non-payment of accelerated principal, or other specified amount, have been cured
or waived.

Other than the duty to act with the required care during an event of
default, the trustee will not be obligated to exercise any of its rights or
powers at the request of the holders unless the holders offer the trustee
reasonable indemnity. Generally, the holders of a majority in aggregate
principal amount of the outstanding debt securities of any series will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee.

A holder will have the right to begin a proceeding under the indentures, or
for the appointment of a receiver or a trustee, or for any other remedy under
the indentures only if:

(1) the holder has previously given to the trustee written notice of a
continuing event of default with respect to the debt securities of that
series,

(2) the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made a written request and
have offered reasonable indemnity to the trustee to begin the proceeding,

(3) the trustee has not started the proceeding within 60 days after
the request, and

(4) the trustee has not received direction inconsistent with the
original request from the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series within 60 days
after the original request.

Holders may, however, sue to enforce the payment of principal, premium or
interest on or after the due date without following the procedures listed in (1)
through (4) above.

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<PAGE> 46

We will furnish the trustee an annual statement by our officers as to
whether or not we are in default in the performance of the indenture and, if so,
specifying all known defaults.

MODIFICATION AND WAIVER

We and the trustee may make modifications and amendments to the indentures
with the consent of the holders of a majority in aggregate principal amount of
the outstanding securities of each series affected by the modification or
amendment.

However, neither we nor the trustee may make any modification or amendment
without the consent of the holder of each outstanding security of that series
affected by the modification or amendment if such modification or amendment
would:

- change the stated maturity of any debt security,

- reduce the principal, premium, if any, or interest on any debt security,

- reduce the principal of an original issue discount security or any other
debt security payable on acceleration of maturity,

- change the place of payment or the currency in which any debt security is
payable,

- impair the right to sue for any payment after the stated maturity or
redemption date,

- if subordinated debt securities, modify the subordination provisions in a
materially adverse manner to the holders,

- adversely affect the right to convert any debt security, or

- change the provisions in the indenture that relate to modifying or
amending the indenture.

SATISFACTION AND DISCHARGE; DEFEASANCE

We may be discharged from our obligations on the debt securities of any
series that have matured or will mature or be redeemed within one year if we
deposit with the trustee enough cash to pay all the principal, interest and any
premium due to the stated maturity date or redemption date of the debt
securities.

Each indenture contains a provision that permits us to elect:

- to be discharged from all of our obligations, subject to limited
exceptions, with respect to any series of debt securities then
outstanding; and/or

- to be released from our obligations under the following covenants and
from the consequences of an event of default resulting from a breach of
these covenants:

(1) the limitations on sale and leaseback transactions under the
senior indenture,

(2) the limitations on secured debt under the senior indenture,

(3) the subordination provisions under the subordinated indenture, and

(4) covenants as to payment of taxes and maintenance of properties.

To make either of the above elections, we must deposit in trust with the
trustee enough money to pay in full the principal, interest and premium on the
debt securities. This amount may be made in cash and/or U.S. government
obligations. As a condition to either of the above elections, we must deliver to
the trustee an opinion of counsel that the holders of the debt securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of the action.

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<PAGE> 47

If we elect to be discharged from all of our obligations as outlined above
in the first bullet point in this section, the holders of the debt securities of
the series will not be entitled to the benefits of the indenture, except for
registration of transfer and exchange of debt securities and replacement of
lost, stolen or mutilated debt securities.

NOTICES

Notices to holders will be given by mail to the addresses of the holders in
the security register.

GOVERNING LAW

The indentures and the debt securities will be governed by, and construed
under, the law of the State of New York, without regard to conflicts of laws
principles.

REGARDING THE TRUSTEE

The indentures limit the right of the trustee, should it become a creditor
of Sun, to obtain payment of claims or secure its claims.

The trustee is permitted to engage in certain other transactions. However,
if the trustee acquires any conflicting interest, and there is a default under
the debt securities of any series for which they are trustee, the trustee must
eliminate the conflict or resign.

SENIOR DEBT SECURITIES

The senior debt securities will be unsecured and will rank equally with all
of our other unsecured and non-subordinated senior debt. With respect to the
limitations in the indenture on liens and sale and lease-back transactions
described below, none of our consolidated assets is currently subjected to the
restrictions of such limitations, either because such assets are not principal
properties of Sun or any restricted subsidiary or are within the exceptions
contained in such covenants, or because none of our subsidiaries is currently a
restricted subsidiary.

Covenants in the Senior Indenture

Limitations on Liens. Neither we nor any restricted subsidiary will issue,
incur, create, assume or guarantee any secured debt without securing the senior
debt securities equally and ratably with or prior to that secured debt unless
the total amount of all secured debt that the senior debt securities are not
secured equally and ratably with, would not exceed the greater of $300 million
or 10% of our consolidated net tangible assets.

Limitations on Sale and Lease-back Transactions. Subject to the last
paragraph of this Section, neither we nor any restricted subsidiary will enter
into any lease longer than three years covering any of our principal property or
any restricted subsidiary that is sold to any other person in connection with
that lease unless either:

(1) we or any restricted subsidiary would be entitled to incur
indebtedness secured by a mortgage on the principal property involved in
such transaction at least equal in amount to the attributable debt with
respect to the lease, without equally and ratably securing the senior debt
securities, pursuant to "Limitation on Liens" described above, or

(2) an amount equal to the greater of the following amounts is applied
within 180 days to the retirement of our or any restricted subsidiary's
long-term debt or the purchase or development of comparable property:

- the net proceeds from the sale; and

- the attributable debt with respect to the sale and leaseback transaction.

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<PAGE> 48

However, either we or our restricted subsidiaries would be able to enter
into a sale and lease back transaction without being required to apply the net
proceeds from this sale and lease back transaction as required by (2) above if
the sum of the following amounts would not exceed the greater of $300 million or
10% of our consolidated net tangible assets:

- the total amount of the sale and leaseback transactions, and

- the total amount of secured debt.

Absence of Certain Covenants. The prospectus supplement will specify any
additional restrictive covenants applicable to the senior debt securities. The
senior indenture does not contain provisions permitting the holders of senior
debt securities to require us to repurchase or redeem the senior debt securities
in the event of a takeover, recapitalization or similar restructuring, highly
leveraged transaction, or downgrading of our debt ratings.

Definitions

"attributable debt" with regard to a sale and leaseback transaction means
the lesser of:

(1) the fair market value of such property as determined in good faith
by our board of directors, or

(2) discounted present value of all net rentals under the lease.

"consolidated net tangible assets" means total assets, less reserves, after
deducting:

- total current liabilities, excluding:

- notes and loans payable,

- current maturities of long-term debt,

- current maturities of capital leases, and

- certain intangible assets to the extent included in total assets.

"mortgage" means a mortgage, security interest, pledge, lien, charge or
other encumbrance.

"Nonrecourse obligation" means indebtedness substantially related to:

- acquisition of assets not previously owned by us or any restricted
subsidiary, or

- the financing of any project involving the development of either our or
any of our restricted subsidiary's property in which the only recourse is
to the proceeds or the project financed with the proceeds of the
transaction.

"principal property" means the land, improvements, buildings and fixtures
owned by us or a restricted subsidiary located in the United States that
constitutes our principal corporate office, any manufacturing plant or any
manufacturing facility and has a book value in excess of .75% of our
consolidated net tangible assets as of the determination date. Principal
property does not include any property that our board of directors has
determined not to be of material importance to the business conducted by us and
our subsidiaries, taken as a whole.

"restricted subsidiary" means any subsidiary that owns any principal
property. "Restricted subsidiary" does not include:

- any subsidiary primarily engaged in financing receivables or in the
finance business, or

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<PAGE> 49

- any of our less than 80% owned subsidiaries if the common stock of the
subsidiary is traded on any national securities exchange or quoted on the
Nasdaq National Market or over the counter.

"secured debt" means any of our debt or any debt of a restricted subsidiary
for borrowed money secured by a mortgage on any principal property or any stock
or indebtedness of a restricted subsidiary. Secured debt does not include:

- mortgages on property existing at the time of acquisition of the property
by us or any subsidiary,

- mortgages on property, shares of stock or indebtedness or other assets of
a corporation existing at the time it becomes a restricted subsidiary,

- mortgages on property, shares of stock or indebtedness or other assets
existing at the time of acquisition by us or a restricted subsidiary
(including leases), or mortgages to secure payment of all or any part of
the purchase price, or to secure any debt within 270 days after the
acquisition thereof, or in the case of property, the completion of
construction, improvement or commencement of substantial commercial
operation of the property,

- mortgages to secure indebtedness owing to us or to a restricted
subsidiary,

- mortgages existing at the date of the senior indenture,

- mortgages on property existing at the time the person is merged or
consolidated with us or a restricted subsidiary,

- mortgages on property at the time of a sale or lease of the properties of
a person as an entirety or substantially as an entirety to us or a
restricted subsidiary,

- mortgages incurred to finance the acquisition or construction of property
secured by mortgages in favor of the United States or a political
subdivision of the United States,

- mortgages incurred in connection with asset acquisition or a project
financed with a non-recourse obligation, or

- mortgages constituting any extension, renewal or replacement of any
mortgage listed above to the extent the mortgage is not increased.

SUBORDINATED DEBT SECURITIES

The indebtedness evidenced by the subordinated debt securities is
subordinated to the extent provided in the subordinated indenture to the prior
payment in full of all senior debt, including any senior debt securities.

Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, payments on the subordinated debt securities will
be subordinated in right of payment to the prior payment in full of all senior
debt.

As a result of these subordination provisions, in the event of our
bankruptcy, dissolution or reorganization, holders of senior debt may receive
more, ratably, and holders of the subordinated debt securities may receive less,
ratably, than our other creditors.

In the event of any acceleration of the subordinated debt securities
because of an event of default, holders of any senior debt would be entitled to
payment in full in cash of all senior debt before the holders of subordinated
debt securities are entitled to receive any payment or distribution.

We are required to promptly notify holders of senior debt if payment of the
subordinated debt securities is accelerated because of an event of default.

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<PAGE> 50

We may also not make payment on the subordinated debt securities if:

- a default in the payment of senior debt occurs and is continuing, or

- any other default occurs and is continuing with respect to designated
senior debt that permits holders or their representatives of designated
senior debt to accelerate its maturity, and the trustee receives a
payment blockage notice from us or some other person permitted to give
the notice under the subordinated indenture.

We may and shall resume payments on, and may purchase or redeem or make a
sinking fund or defeasance payment on, the subordinated debt securities:

- in case of a payment default, when the default is cured or waived or
ceases to exist, and

- in case of a nonpayment default, the earlier of when the default is cured
or waived or ceases to exist or 179 days after the receipt of the payment
blockage notice if the maturity of the designated senior debt has not
been accelerated.

No new payment blockage period may start unless 365 days have elapsed from
the effectiveness of the prior payment blockage notice.

No nonpayment default that existed or was continuing on the date of
delivery of any payment blockage notice to the trustee shall be the basis for a
subsequent payment blockage notice.

The subordination provisions will not prevent the occurrence of any event
of default under the subordinated indenture.

If the trustee or any holder receives any payment that should not have been
made to them in contravention of subordination provisions before all senior debt
is paid in full, then such payment will be held in trust for the holders of
senior debt.

Senior debt securities will constitute senior debt under the subordinated
indenture.

Definitions

"designated senior debt" means certain existing senior debt and any of our
other senior debt that expressly provides that it is "designated senior debt."

"senior debt" means principal, premium and interest, including bankruptcy
interest, and fees on the following:

(1) our indebtedness evidenced by credit or loan agreement, note,
bond, debenture or other written obligation;

(2) our obligations for money borrowed;

(3) our obligations evidenced by a note in an acquisition of any
businesses, properties or assets;

(4) capitalized leases;

(5) leases for facilities, equipment or related assets for financing
purposes, as determined by Sun;

(6) certain types of off-balance sheet real estate leases;

(7) interest rate and currency agreements;

(8) letters of credit, bankers' acceptances or similar facilities;

(9) obligations issued or assumed as the deferred purchase price of
property or services, excluding trade accounts payable in the ordinary
course of business;

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<PAGE> 51

(10) obligations of the type listed in 1 through 9 above of another
person and all dividends of another person, which we have either assumed or
guaranteed or are liable or which is secured by a lien on our property; and

(11) any renewals or extensions listed in 1 through 10 above.

However, senior debt shall not include:

- subordinated debt securities, or

- indebtedness if the terms of the indebtedness expressly provides that it
is not superior in right of payment to the subordinated debt securities.

"subsidiary" means:

- any corporation of which more than 66 2/3% is owned by us or by one or
more or our other subsidiaries, and

- any partnership of which more than 66 2/3% of the equity capital or
profit interest is owned by us or by one or more of our other
subsidiaries.

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<PAGE> 52

DESCRIPTION OF PREFERRED STOCK

The following description of preferred stock and the description of the
terms of a particular series of preferred stock that will be set forth in the
related prospectus supplement are not complete. These descriptions are qualified
in their entirety by reference to the certificate of designations relating to
that series. The rights, preferences, privileges and restrictions of the
preferred stock of each series will be fixed by the certificate of designations
relating to that series. The prospectus supplement also will contain a
description of certain United States federal income tax consequences relating to
the purchase and ownership of the series of preferred stock that is described in
the prospectus supplement.

As of June 18, 1999, there were no shares of preferred stock outstanding.
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the following terms of the preferred stock:

- designations, powers, preferences, privileges,

- relative participating, optional or special rights, and

- the qualifications, limitations or restrictions, including dividend
rights, conversion rights, voting rights, terms of redemption and
liquidation preferences.

Any or all of these rights may be greater than the rights of the common stock.

In May 1989, we paid a dividend of one share purchase right for each share
of our outstanding common stock. Each right entitles the holder to purchase from
us one one-thousandth of a share of Series A Participating Preferred Stock at a
purchase price of $150.00. The number of rights, the shares of Series A
Participating Preferred Stock that may be purchased under one right and the
purchase price may be adjusted to prevent dilution. We are authorized to issue
up to 3,000,000 shares of our Series A Participating Preferred Stock under our
certificate of incorporation. No shares of Series A Participating Preferred
Stock are outstanding.

The Board of Directors, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could negatively affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of Sun or make it more difficult to remove our management.
Additionally, the issuance of preferred stock may have the effect of decreasing
the market price of the common stock.

The prospectus supplement will specify:

- the maximum number of shares,

- the designation of the shares,

- the annual dividend rate, if any, whether the dividend rate is fixed or
variable, the date dividends will accrue, the dividend payment dates, and
whether dividends will be cumulative,

- the price and the terms and conditions for redemption, if any, including
redemption at our option or at the option of the holders, including the
time period for redemption, and any accumulated dividends or premiums,

- the liquidation preference, if any, and any accumulated dividends upon
the liquidation, dissolution or winding up of Sun's affairs,

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<PAGE> 53

- any sinking fund or similar provision, and, if so, the terms and
provisions relating to the purpose and operation of the fund,

- the terms and conditions, if any, for conversion or exchange of shares of
any other class or classes of our capital stock or any series of any
other class or classes, or of any other series of the same class, or any
other securities or assets, including the price or the rate of conversion
or exchange and the method, if any, of adjustment,

- the voting rights, and

- any or all other preferences and relative, participating, optional or
other special rights, privileges or qualifications, limitations or
restrictions.

Preferred stock will be fully paid and nonassessable upon issuance. The
preferred stock or any series of preferred stock may be represented, in whole or
in part, by one or more global certificates, which will have an aggregate
principal amount equal to that of the preferred stock represented by the global
certificate.

Each global certificate will:

- be registered in the name of a depositary or a nominee of the depositary
identified in the prospectus supplement,

- be deposited with such depositary or nominee or a custodian for the
depositary, and

- bear a legend regarding the restrictions on exchanges and registration of
transfer and any other matters as may be provided for under the
certificate of designation.

PLAN OF DISTRIBUTION

We may sell the securities separately or together:

- through one or more underwriters or dealers in a public offering and sale
by them,

- directly to investors, or

- through agents.

We may distribute the securities from time to time in one or more
transactions at a fixed price or prices. These prices may be changed from time
to time and may be set:

- at market prices prevailing at the times of sale,

- at prices related to such prevailing market prices, or

- at negotiated prices.

We will describe the method of distribution of the securities in the
prospectus supplement.

Underwriters, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from us or our purchasers (as their agents
in connection with the sale of securities). These underwriters, dealers or
agents may be considered to be underwriters under the Securities Act. As a
result, discounts, commissions, or profits on resale received by the
underwriters, dealers or agents may be treated as underwriting discounts and
commissions. The prospectus supplement will identify any such underwriter,
dealer or agent, and describe any compensation received by them from us. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.

Underwriters, dealers and agents may be entitled to indemnification by us
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with

22
<PAGE> 54

respect to payments made by the underwriters, dealers or agents, under
agreements between us and the underwriters, dealers and agents.

We may grant underwriters who participate in the distribution of securities
an option to purchase additional securities to cover over-allotments, if any, in
connection with the distribution.

All preferred stock and debt securities will be new issues of securities
with no established trading market. Underwriters involved in the public offering
and sale of preferred stock and debt securities may make a market in the
preferred stock and debt securities. However, they are not obligated to make a
market and may discontinue market making activity at any time. Therefore, we
cannot give any assurances to you as to the liquidity of the trading market for
any preferred stock or debt securities.

Underwriters or agents and their associates may be customers of, engage in
transactions with or perform services for us in the ordinary course of business.

LEGAL MATTERS

The validity of the issuance of our securities offered by this prospectus
will be passed upon for Sun by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements incorporated by reference and schedule included in our
Annual Report on Form 10-K, as amended on Form 10-K/A, for the year ended June
30, 1998, as set forth in their report, which is incorporated by reference in
this prospectus. Our consolidated financial statements and schedule are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.

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<PAGE> 55

- ---------------------------------------------------------
- ---------------------------------------------------------

No dealer, salesperson or other person
is authorized to give any information or to
represent anything not contained in this
prospectus. You must not rely on any
unauthorized information or representations.
This prospectus is an offer to sell only the
notes offered hereby, but only under
circumstances and in jurisdictions where
it is lawful to do so. The information
contained in this prospectus is current
only as of its date.

------------------------

TABLE OF CONTENTS
Prospectus Supplement

<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements............. S-2
The Company............................ S-3
Capitalization......................... S-4
Use of Proceeds........................ S-4
Selected Consolidated Financial Data... S-5
Management's Discussion and Analysis of
Results of Operations and Financial
Condition............................ S-6
Business............................... S-13
Description of the Notes............... S-21
General Listing Information............ S-26
Underwriting........................... S-28
Legal Matters.......................... S-29
</TABLE>

Prospectus

<TABLE>
<S> <C>
Summary................................ 1
Where You Can Find More Information.... 3
Risk Factors........................... 4
Use of Proceeds........................ 10
Ratio of Earnings to Fixed Charges..... 10
Description of the Debt Securities..... 10
Description of Preferred Stock......... 21
Plan of Distribution................... 22
Legal Matters.......................... 23
Experts................................ 23
</TABLE>

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- ---------------------------------------------------------
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- ---------------------------------------------------------

$1,000,000,000
SUN MICROSYSTEMS, INC.

$
% Senior Notes due 200

$
% Senior Notes due 200
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
ABN AMRO INCORPORATED
BANC OF AMERICA SECURITIES LLC
CHASE SECURITIES INC.
J.P. MORGAN & CO.
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