Subject: 1989 (financial) Q3 Stockholder's Report (Sun's Financial year is July 1 - June 30. The Q4 / FY '89 will be out in August. In anticipation of that, I thought that many people would find this Q3 shareholder report of interest. -johnj ) -------------------------------------------------------------------------------- -------------------- Financial Highlights -------------------- Nine Months Ended (in thousands, except March 31, March 25, Percentage earnings per share) 1989 1988 Change Revenues $1,334,170 $ 686,488 +94 Net Income 81,103 41,161 +97 Earning Per Share $ 1.00 $ 0.56 +79 -------------------------------------------------------------------------------- Revenues in the third quarter of fiscal 1989, which ended March 31, reached a record of $497.4 million, a 92 percent increase over the $259.7 million reportedi n the same period a year ago. Net income for the quarter, also a record, was $31.0 million, or $0.38 per share, more than doubling from the $14.3 million, or$0.19 per share, in the same period a year ago. For the first nine months of fiscal 1989, revenues were $1.334 billion, up 94 percent from the $686.5 million reported in the corresponding period of fiscal 1988. Net income for the nine-month period was $81.1 million, or $1.00 per share, compared with $41.2 million, or $0.56 per share, in the same period a year ago. Shipment trends for Sun's products remained strong during the third quarter, both in the United States and abroad. Reflecting this trend, third quarter revenues from the Sun-4 supercomputing workstations, which are based on Reduced Instruction Set Computing (RISC) technology, increased fivefold over the same period last year and now represent about one-quarter of Sun's total systems revenues. In addition, the Sun386i family of workstations grew to 15 percent of Sun's total systems revenues in the third quarter. In fact, in its first 12 months of shipments this product line accounted for more than $100 million in revenues, with particular success in the electronic publishing and finance markets. Sun is poised to gain considerable leverage from the establishment of SPARC as the leading RISC/UNIX microprocessor standard. In mid-April, we introduced the most significant new products in Sun's history, incorporating powerful graphics capabilities and many ease-of-use features associated with personal computers. The majority of these new workstations and servers are additions to the SPARC family, delivering high performance at low cost. Also launched in April were two new systems based on the Motorola 68030 microprocessor, continuing Sun's commitment to the Sun-3 family, the industry's most popular workstations and servers. Sun also unveiled a suite of graphics-oriented window-based personal productivity tools built around the OPEN LOOK graphical user interface, giving unprecedented ease of use to the UNIX operating system, which is rapidly gaining adherents in the realm of distributed computing. The performance-oriented products we introduced in April incorporate many new design changes and technologies that encourage efficient, high-volume manufacturing. However, new product manufacturing volumes in the fourth quarter may be constrained by the limited availability of certain new components needed to satisfy this anticipated demand. As a result, revenues in our fourth quarter will come mostly from those Sun products available prior to the April introduction, which currently carry somewhat lower profit margins than our newest products. By September 1989, we expect the majority of Sun's revenues to be derived from our newer, higher-margin systems. The ready availability of third-party applications will be crucial to the continued acceptance of Sun's systems in the future, especially in the RISC/ UNIX environment, which is emerging rapidly as one of the leading computing formats of the 1990s. In addition to more than 2300 applications now available for the Sun-3 family, there are now some 500 SPARCware applications available for Sun's new SPARC-based products. New SPARCware applications are emerging at a rate averaging one per day. In our view, this virtually assures the acceptance of SPARC as one of the leading computing standards of the next decade. With our broad array of SPARC-based systems available at a variety of price and performance points, as well as the Sun-3 and Sun386i families, Sun should be ideally positioned in coming quarters to benefit from the movement toward high-performance desktop computing. Many larger computer companies have rushed to market in the past year with products and strategy reminiscent of those iuggested by Sun nearly a decade ago; talk of open systems, distributed computing, and industry standards now pervades the marketplace. Nevertheless, according to the latest Fortune 500 survey, no company has capitalized upon these trends more successfully than Sun, which once again emerged as the fastest-growing major computer company in the United States. We look forward to fiscal 1990 as a year in which we can help a growing roster of customers realize the benefits of unprecedented desktop computing performance combined with new standards for ease of use. Your continued support during this exciting time of opportunity for Sun is greatly appreciated. Scott G. McNealy President and CEO May 12, 1989