SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                         -------------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    Of 1934 [FEE REQUIRED]

                     For the fiscal year ended June 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED]

       For the transition period from ________________ to _______________

                         Commission file number: 0-15086
                             SUN MICROSYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

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

        Delaware                                         94-2805249
 (State of incorporation)                             (I.R.S. Employer
                                                      Identification No.)

    901 San Antonio Road                              (650)-960-1300
    Palo Alto, CA 94303
(Address of principal executive                  (Registrant's telephone number,
  offices, including zip code)                       including area code)

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

              Securities pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock
                          Common Share Purchase Rights

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES X NO

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of the  Registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  on Part  III of this  Form  10-K or any
amendment to this Form 10-K [ ].

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant,  as of September 16, 1997, was approximately  $21,833,000,000
based upon the last sale  price  reported  for such date on the Nasdaq  National
Market System.  For purposes of this disclosure,  shares of Common Stock held by
persons  who hold more  than 5% of the  outstanding  shares of Common  Stock and
shares held by officers  and  directors  of the  Registrant  have been  excluded
because such persons may be deemed to be affiliates.  This  determination is not
necessarily conclusive.

         The number of shares of the Registrant's Common Stock outstanding as of
September  16,  1997 was  429,685,824.  

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

                      DOCUMENTS INCORPORATED BY REFERENCE

         Parts of the Annual  Report to  Stockholders  for the fiscal year ended
June 30, 1997 are incorporated by reference into Items 1,5,6,7,8 and 14 hereof.

      Parts of the Proxy  Statement for the 1997 Annual Meeting of  Stockholders
are incorporated by reference into Items 10, 11, 12 and 13 hereof.

                                       1
<PAGE>


                                     PART I
ITEM 1. BUSINESS

General

     Sun  Microsystems(TM),  Inc.  ("Sun (TM) " or the  "Company")  is a leading
supplier of enterprise  network  computing  products  including desktop systems,
servers, storage subsystems, network switches, software, microprocessors,  and a
full range of services and support.  Sun's products command a significant  share
of a rapidly  growing  segment of the  computer  industry:  networked  computing
environments.  The Company's products are used for many demanding commercial and
technical applications in various industries. Sun has differentiated itself from
its  competitors  by its  commitment  to the  network  computing  model  and the
UNIX(TM)   operating   system,   its  rapid  innovation  and  its  open  systems
architecture.

     Sun conducts its business through various operating  entities and divisions
organized  around the Company's  principal areas of added value.  The individual
businesses generally operate  independently within their charters,  but with the
common corporate strategic vision of being a leading force in network computing.
Sun believes this  organizational  structure allows it to more efficiently focus
on its customers and the products, channels and markets necessary to serve them.
The  Company  continually  evaluates  the  effectiveness  of its  organizational
structure.  As a result of its  evaluation,  the Company at any time may create,
merge or discontinue  various  business  units to increase  customer and product
focus. Sun's primary operating businesses are as follows:

     Sun   Microsystems   Computer   Company(TM)   ("SMCC")   -  SMCC   designs,
manufactures,  and sells  desktop  systems,  a broad range of  servers,  storage
subsystems,   and  network  switches,   incorporating  the  Scaleable  Processor
Architecture  ("SPARC")  microprocessors  and the Solaris software  environment,
licensed by SunSoft, Inc. to SMCC.

     SunService(TM)   Division   ("SunService")   -  A  leading   UNIX   service
organization,   SunService   provides  a  wide  range  of  global  services  for
heterogeneous   network  computing   environments,   including  system  support,
education,  information  technology (IT) consulting,  systems  integration,  and
system/network management.

     SunSoft(TM),  Inc.  ("SunSoft") - SunSoft develops,  markets,  supplies and
supports Solaris (TM), a leading UNIX operating system software  environment for
enterprise-wide  distributed  computing  on SPARC  and other  volume  platforms,
Solstice(TM),  a complete enterprise-wide management solution, and WorkShop(TM),
a set of visual  development  tools to quickly and easily  create  multiplatform
applications for the Internet. SunSoft also offers software products for network
management and PC desktop integration.

     Sun Microelectronics(TM) ("SME")- SME designs and develops high performance
SPARC and Java microprocessors,  as well as enabling technologies,  for SMCC and
third party customers.

     JavaSoft(TM)  -  JavaSoft  develops,  markets  and  supports  the  Java(TM)
software  technology and products based on this  technology.  JavaSoft  develops
applications,  tools,  and  systems  platforms  to  further  enhance  Java  as a
programming  standard for complex  networks  such as the Internet and  corporate
intranets.

     Sun's network computing model and its hardware and software implementations
have attracted and  encouraged a large number of software  vendors to port their
applications  to Sun  platforms,  including an  increasing  number of vendors of
commercial applications.  The availability of such third-party software provides
Sun and its customers with  competitive  advantage and strengthens the Company's
presence in network computing.

--------------------------
Sun, the Sun Logo, Sun Microsystems,  SunSoft, SunService, Sun Microelectronics,
JavaSoft,Ultra,  Enterprise,  NEO ,NFS, Joe, Solaris, Solstice, Netra, SolarNet,
SunNet Manager, SunSoft Workshop, Sun FORTRAN, Sun Ada, Sunergy,  Gigaplane - XB
and  SunSpectrum are  trademarks,  registered  trademarks or servicemarks of Sun
Microsystems,  Inc.  in  the  United  States  and  other  countries.  All  SPARC
trademarks,  including  the SCD Compliant  logo,  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/OpenCompany Ltd.

                                       2
<PAGE>

Products

     Sun believes that customers  increasingly  demand computer  systems that do
not  limit  them to any one  vendor's  proprietary  technology.  To  respond  to
customer needs, Sun has been a proponent of the open systems strategy. This open
systems   strategy  offers  users  and  software   developers  the  benefits  of
compatibility, interoperability,  portability, upgradeability and scalability in
products. Sun's open systems architecture protects existing customer investments
while providing  customers with new,  innovative  technology to allow them to be
competitive in their own markets.

  Systems

     The Company offers a full line of workstations from low-cost  SPARCstations
to high-performance color graphics systems.

     The  current   desktop   workstation   line   includes  the  low-end  color
SPARCstation(TM)  5, and the high  performance  Ultra(TM) series of uniprocessor
and multiprocessor systems.

     The SPARCstation 5 is an accelerated graphics workstation and is one of the
industry's  lowest priced 24-bit color systems.  Based on the 170 MHz microSPARC
II processor,  this workstation is designed for customers seeking  expandability
and fast application performance.

      The  Ultra  series  of  workstations  offers  a  combination  of  high-end
workstation  performance and functionality at a competitive price.  Available in
both uniprocessor and multiprocessor  versions, the Ultra series achieves higher
performance  from the use of  UltraSPARC  (TM)  processors  running at speeds of
143mhz to 300mhz, as well as high performance  motherboards and ASICs.  Designed
for users needing more  specialized  graphics  power,  the Ultra series features
leading edge graphics and networking  integrated at the central  processing unit
(CPU)  level, in  addition  to  advanced  Creator  3D  graphics  and  networking
capabilities as add-on functionality.

     The  Company  offers  a wide  range  of  servers  from  the  low-end  Ultra
Enterprise(TM)  1  Server  to  the  Ultra  Enterprise  10000  Server,  a  highly
scaleable, reliable, enterprise-wide symmetric multiprocessor server.

     The low-end  servers also include the  multiprocessing  Ultra  Enterprise 2
Server and the highly  reliable  Enterprise 150 workgroup  tower server with an
integrated  storage  subsystem.  The Company's  low-end servers are designed for
high performance,  exceptional throughput,  reliability and affordability. Ideal
applications   include  database,   groupware,   email,  and   internet/intranet
capabilities.  They can also function as computational servers for electrical or
mechanical design automation.  These systems are highly  expandable,  offering a
range of main memory and storage configurations.

     For enterprises,  Sun offers its new Ultra Enterprise  Server family.  This
includes the Enterprise 10000 server which scales to 64 processors.

     Sun's  Ultra   Enterprise   Server   family   offers   upgradeability   and
expandability  across this product line.  The entry level  Enterprise  3000 is a
powerful,  scaleable,  versatile,  upgradeable and affordable  departmental UNIX
server in a compact package.  The Enterprise 3000 is expandable up to 6 CPUs and
shares  common  CPU  boards and  peripherals  that can be used  across the Ultra
Enterprise  product  line to provide  flexibility  and  protect  the  customer's
investment.  The Enterprise 4000 is expandable up to 14 processors and is one of
the  most  modular  and  powerful   departmental  servers  offering  outstanding
performance  and the ability to scale system  performance  and capacity as needs
grow. The Enterprise 5000, Sun's entry level datacenter  system is expandable up
to 14 processors and is packaged in a rack  configuration  to enable bundling of
additional storage in a single enclosure.

     The Enterprise  6000 is expandable up to 30 processors and gives  customers
the  ability  to  deploy  large  scale,  mission  critical   applications  in  a
network-based  environment.  It offers the performance and availability required
for mainframe-class, mission critical applications.

     The Enterprise 10000 is the most scaleable SMP system in the product lineup
and incorporates  mainframe features such as dynamic system domains, which allow
for dynamic partitioning of the system, super computer class interconnect called
Gigaplane- XB (TM) which speeds internal data handling,  and a separate  service
processor/console for system monitoring and management.

     The  Company's  Netra(TM)  servers  provide  preconfigured   solutions  for
Internet and intranet  publishing.  Sun also offers the  SPARCstorage(TM)  Array
Model 200 Series,  a high  availability  disk storage  subsystem  utilizing RAID
technology.

                                       3
<PAGE>

System Software

     The system software  environment is a key component for fulfilling customer
needs  around  the  network.   The  Company  continues  to  focus  on  providing
customer-centric  solutions,  including the Solaris  operating  environment with
built-in  networking,  WorkShop  tools for building  network  applications,  and
Solstice software that connects it all together and manages the entire computing
enterprise.  The Company  believes  it derives  competitive  advantage  from the
stability  resulting  from its many years of experience  with  operating  system
software. The Company's principal software products are as follows:

         Solaris  Operating   Environment - Solaris  products  include  desktop,
intranet,  ISP  and  enterprise  operating  environments  for  SPARC  and  Intel
platforms.  Solaris is a fast,  highly reliable,  scaleable and secure operating
environment,  easy to install and use, optimized for Java and supports more than
12,000  applications.   The  Solaris  environment  is  optimized  for  corporate
computing,   intranet/Internet   business   requirements,   powerful  enterprise
databases and high performance technical computing environments.

         Network  Management  Products  -  The  Company's  principal  enterprise
computing  management  solution,  Sun  Network  Management  Products  (Solstice)
provide  a  comprehensive  suite of  system  and  network  management  tools and
applications that give network managers the flexibility of distributed computing
with the control of centralized management for workgroups,  departments,  or the
enterprise - regardless  of the vendors or operating  systems  comprising  their
network.  Solstice  utilizes  distributed  computing  technologies  to scale and
manage global heterogeneous  networks,  such as those in telecommunications  and
financial  services  companies.  Solstice  products such as  Enterprise  Manager
decrease the complexity of managing enterprise-wide networks while significantly
lowering the total cost of operation.

         Sun  Network  Management  Products  are  central to Sun's open  systems
architecture.   These  products  provide   networking   capabilities  that  make
distributed resources easily accessible by PCs, workstations,  servers and other
computing   devices  on  a  single   network.   These  products  also  integrate
heterogeneous  global,  department,  local and  remote  network  resources  into
company-wide  information  systems.  The  Company  is  committed  to  developing
networking  products  that  adhere  to  and  promote  open  industry  networking
standards and technologies in emerging areas such as the Internet and intranet.

     In addition,  Sun Internet Mail Server software helps companies consolidate
their  business  on a single,  scaleable  e-mail  architecture,  enabling  open,
reliable,  and  cost-effective  communication.  Built on Internet  and  industry
standards such as SMTP and MIME, Sun Internet Mail Server offers a single,  open
Internet  alternative  to  proprietary  mail  systems.  Sun Internet Mail Server
provides the  industry's  most complete  implementation  of the latest  Internet
standard,  Internet Message Access Protocol version 4 (IMAP4), for reliable mail
messaging.

         Network   Security   Solutions  -  Sun  provides   businesses   with  a
comprehensive set of modular,  heterogeneous,  and scaleable  security solutions
that include encryption,  authentication,  access control,  and firewall defense
products  needed  to make  use of the  Internet,  intranets  and  extranets,  as
communications and trading channels.

     Developer  Products  - The  Workshop  integrated  development  tool  suites
support Java, C++, C, Sun FORTRAN(TM), Sun ADA(TM), and the Interface Definition
Language (IDL). In addition, Sun offers integrated development  environments for
OpenStep,  PASCAL  and  MicroFocus  COBOL.  Java  Workshop  is  a  powerful  and
streamlined Internet  programming  environment allowing developers to create and
publish  Internet  applications.  Visual  Workshop  for C++  provides  a tightly
integrated visual programming  environment for professional  developers to build
and deploy high-performance  client-server applications.  Internet Workshop also
offers tools for developing  object-oriented,  three-tier networked applications
with Java, C++ and the NEO CORBA-compliant IDL.

         The Java  Developers  Kit enables  developers  to create Java  applets,
which are miniature  applications that run inside a World Wide Web page, as well
as Java applications.

         JavaSoft  Products - The Java Application  Environment  (JAE) is one of
the first  widely  accepted  application  environments  to enable the platform -
independent  development of application  software.  In fiscal 1997, Sun licensed
JAE and JavaOS to over thirty computer and software companies, including several
high volume operating  system vendors.  These vendors plan to integrate JAE into
their operating systems so that  applications  written in Java will run on their
systems.  In addition,  the Company initiated a range of development  activities
during fiscal 1997 to increase the capabilities of the Java language.

                                       4

<PAGE>

Sales, Distribution and Marketing

     Sun maintains a presence in most major markets and sells computer  systems,
software and services to its customers worldwide through a combination of direct
and  indirect  channels.  The Company  also offers  off-the-shelf  software  and
component  products such as CPU chips, ASICs and embedded boards on an OEM basis
to other  hardware  manufacturers,  and  supplies  after-market  and  peripheral
products to its end user installed base,  both directly and through  independent
distributors and resellers.

     In  general,   the  Company's  direct  sales  force  is  compensated  on  a
channel-neutral basis to reduce potential channel conflict with our distribution
partners. Distribution channels include:

         -  a direct sales force selling to selected end-user named accounts and
            numerous indirect channels,

         -  systems integrators,  both government and commercial,  who serve the
            market for large commercial projects requiring substantial analysis,
            design, development, implementation and support of custom solutions;

         -  master  resellers who supply product and provide  product  marketing
            and technical  support services to the Company's smaller Value Added
            Resellers ("VARs");

         -  VARs who  provide  added  value in the  form of  software  packages,
            proprietary software development,  high-end networking  integration,
            vertical   integration,   vertical  industry  expertise,   training,
            installation and support;

         -  OEMs who integrate the  Company's  products with other  hardware and
            software; and

         -  independent  distributors  who primarily  cover markets in which Sun
            does not have a direct presence.

The growth and  management  of the  reseller  channels is very  important to the
future revenues and  profitability of the Company.  Channel partners account for
greater than 50% of Sun's  revenue today and will continue to play a key role in
providing  the value,  service and support  that are critical to Sun's long term
success.

     The Company's direct systems sales force serves  educational  institutions,
software  vendors,  governments,  businesses and other strategic  accounts.  The
Company has  approximately 80 sales and service offices in the United States and
approximately 88 sales and service offices in 40 other  countries.  In addition,
it uses independent  distributors in approximately  150 countries,  sometimes in
concert with other resellers and direct sales operations.

     Revenues from outside the United  States,  including  those from end users,
resellers and distributors, constituted approximately 49% in fiscal 1997 and 50%
of net revenues in fiscal 1996, and 1995. Direct sales made in countries outside
of the  United  States  are  generally  priced  in  local  currencies  and  are,
therefore, subject to currency exchange fluctuations. The net impact of currency
fluctuations on net revenues and operating results cannot be precisely  measured
as the Company's  product mix and pricing  change over time in various  markets,
partially in response to currency movements. To minimize currency exposure gains
and losses,  the Company borrows funds in local currencies,  enters into forward
exchange  contracts,  purchases  foreign  currency  options and promotes natural
hedges by  purchasing  components  and  incurring  expenses in local  currencies
whenever  feasible.  Sun's sales to  overseas  customers  are made under  export
licenses that must be obtained  from the United  States  Department of Commerce.
Protectionist  trade legislation in either the United States or other countries,
such as a change in the current tariff  structures,  export  compliance  laws or
other  trade  policies,  could  adversely  affect  Sun's  ability  to sell or to
manufacture in international  markets. Sales to or through C. Itoh Technoscience
Co. Ltd., Fujitsu, Ltd. and Toshiba Corporation together represent a significant
portion  of Sun's  revenues  in  Japan.  See  Note 9 of  Notes  to  Consolidated
Financial Statements incorporated by reference herein for additional information
concerning sales to foreign customers and industry segments.

     Seasonality   affects  the  Company's   revenues  and  operating   results,
particularly  in the first and third  quarter of each fiscal year.  In addition,
the Company's  operating  expenses are  increasing  as the Company  continues to
expand its operations,  and future operating results will be adversely  affected
if revenues do not increase proportionatly with such increased expense levels.

     The  Company's   marketing   activities  include  advertising  in  computer
publications and the business press, direct mailings to customers and prospects,
televised  programs  and  attendance  at trade shows.

                                       6
<PAGE>

Sun maintains a customer  resource  program,  Sunergy(TM),  which  includes live
interactive  satellite  broadcasts and provides  electronic access to newsletter
and  technical  information.  Sun also sponsors a series of seminars to specific
resellers,   university  customers,  end  users  and  government  customers  and
prospects  designed to familiarize  attendees with the  capabilities  of the Sun
product line.

     Sun's  order  backlog  at June 30,  1997 was  approximately  $378  million,
compared with approximately $522 million at June 30, 1996. Backlog includes only
orders for which a delivery schedule within six months has been specified by the
customer.  Backlog  levels  vary  with  demand,  product  availability  and  the
Company's  delivery  lead times and are subject to  significant  decreases  as a
result of, among other things,  customer order delays, changes or cancellations.
As such,  backlog  levels  are not a  reliable  indicator  of  future  operating
results.

Customer Service and Support

The Company provides expertise in heterogeneous network computing through a full
range of global  services,  including  support  services  (hardware and software
systems support),  educational services (education consulting,  skills migration
and training) and professional services (IT consulting,  systems integration and
system/network management). Sun assists both technical and commercial customers,
supporting more than 700,000 systems in 170 countries, training more than 75,000
students  annually,   and  providing  consulting,   integration  and  operations
assistance to IT organizations worldwide.

In  support  services,  Sun has  increased  field  resources  in direct  service
delivery,  especially  software support  engineers based in solution centers and
field  offices.  Higher  levels of field  resources  are critical to the overall
investments being made in mission-critical  support capability.  This direct Sun
capability  is  complemented  by  third-party  service  providers  who primarily
deliver hardware support  services.  Software support  continues to be primarily
delivered by Sun  software  support  engineers.  Third party  service  providers
provide necessary leverage on critical field resources such as parts inventories
and  staff to meet the  service  requirements  of the  growing  installed  base.
Investments by these  third-party  service  providers in  complementary  support
infrastructure facilitates expansion of geographical coverage without additional
fixed cost investment by the Company.

The  Company  offers a  warranty  for parts and labor on its  hardware  products
generally  for one year  from date of sale and a limited  warranty  on  software
generally for 90 days from date of sale. The Company  maintains and services the
products during the warranty period and on a contractual basis after the initial
product  warranty  has expired.  Post-warranty  support  services are  primarily
offered through a tiered support  offering called  SunSpectrum(TM).  SunSpectrum
offers four levels of differentiated support that package hardware, software and
peripherals  in a single  price  support  service.  Warranty  and  post-warranty
services are provided through 27 solution centers worldwide.

Sun's educational  services offers  comprehensive  skills migration,  enterprise
consulting  and  courseware.  Consultants  can perform  needs  analysis,  skills
assessment  and   migration,   curriculum   design  and  course   customization.
Instructor-led  courseware  addresses the  educational  needs of many  customers
including managers, operators, developers, system administrators, and end-users.
As an alternative to the classroom,  customers may select  self-study  training,
including more than 50 interactive  training  products  geared for all levels of
expertise.

In professional services,  Sun provides the people,  processes and technology to
deliver single  point-of-contact  solutions tailored to meet customer needs. Sun
technical and project  management  experts help customers plan,  implement,  and
manage heterogeneous computing environments. Sun consultants also help design IT
architectures and plan migrations from legacy systems to network  computing.  To
implement  solutions,  integration  experts  help  customers  develop and deploy
distributed computing environments for new applications. To keep the environment
operating at peak  performance,  operations  experts help  customers  manage the
complexity of the  heterogeneous  systems and networks.  In addition,  Sun helps
with all phases of creating and  implementing  internet  solutions.  Investments
have been made in  competencies  in  Internet/Java,  business  applications  and
systems and network management.

Certain  complex  systems  sold by Sun  require a high  level of  implementation
support and  consequently,  the  customer's  acceptance  of such  systems may be
delayed in the event Sun does not provide a  sufficient  level of such  service.
Delays in  customer  acceptance  could  adversely  affect the  future  operating
results of the Company.

Product Development

     The  Company's  research and product  development  programs are intended to
sustain  and  enhance  its  competitive  position  by  incorporating  the latest
worldwide   advances  in  hardware,   software,   graphics,   networking,   data
communications  and storage  technologies.  Sun's product  development 

                                       6
<PAGE>

efforts,  conducted  within each of its  businesses,  are  currently  focused on
enhancing  its  products'   performance  and   price/performance,   as  well  as
reliability,  availability,  and serviceability,  of both the Company's hardware
and  systems  software  for the  Company's  expanding  enterprise  client-server
computing  customer base.  Additionally,  Sun remains focused on system software
platforms   for  Internet  and  intranet   applications,   developing   advanced
workstation and server architectures,  designing application-specific integrated
circuits and software for  networking  and  distributed  computing.  Sun product
development   continues  to  be  committed  to  including  the  high-performance
implementation  of existing  standards  and the  development  of new  technology
standards.

     Sun  conducts  research  and  development   worldwide  principally  through
facilities in the United States,  France,  and Japan.  Research and  development
expenses  were  approximately  $826  million,  $653  million and $563 million in
fiscal 1997, 1996 and 1995,  respectively.  In recent years,  Sun's research and
development efforts have focused increasingly on the Java architecture,  Solaris
software and SPARC  microprocessors.  Sun  believes  that  software  development
provides  and  continues  to provide  significant  competitive  differentiation.
Therefore,  Sun currently  devotes  substantial  resources to the development of
workgroup software,  networking and data communications,  video, graphics,  disk
array, object technology and the software development environment.

     The  development  of high  performance  computer  products is a complex and
uncertain  process  requiring  high  levels  of  innovation  from the  Company's
designers  and  suppliers,   as  well  as  accurate   anticipation  of  customer
requirements and technological trends.

Manufacturing and Supply

     The Company's manufacturing operations consist primarily of printed circuit
board  assembly  and  final  assembly,  test and  quality  control  of  systems,
materials  and  components.  Sun has  manufacturing  facilities  in  California,
Oregon,  England and Scotland,  and distribution  facilities in California,  the
Netherlands  and Japan.  The Company has  continued  its efforts to simplify its
manufacturing process by reducing the diversity of system configurations offered
to customers,  increasing the standardization of components across product types
and establishing local sources of supply in major geographies.

     Sun uses many  standard  parts and  components in its products and believes
there are a number of competent vendors for most parts and components.  However,
a number of important  components  are  developed by and  purchased  from single
sources  due to price,  quality,  technology  or other  considerations.  In some
cases,  those components are available only from single sources.  In particular,
Sun is dependent on Sony Corporation for various monitors and on Fujitsu Limited
(Fujitsu) and Texas Instruments  Incorporated for different  implementations  of
SPARC microprocessors. Certain custom silicon parts are designed by and produced
on a contractual  basis for Sun. The process of  substituting  a new producer of
such parts could  adversely  affect Sun's operating  results.  Some suppliers of
certain components,  including color monitors and custom silicon parts,  require
long lead times such that it can be difficult for the Company to plan  inventory
levels of components to  consistently  meet demand for Sun's  products.  Certain
other components,  especially memory integrated  circuits such as DRAMs,  SRAMs,
and VRAMs,  have from time to time been  subject  to  industry  wide  shortages.
Future shortages of components could negatively  affect the Company's ability to
match supply and demand,  and  therefore  could  adversely  impact the Company's
future operating results.

     The Company is  increasingly  dependent on the ability of its  suppliers to
design,  manufacture  and deliver  advanced  components  required for the timely
introduction  of new products.  The failure of any of these suppliers to deliver
components  on time or in  sufficient  quantities,  or the failure of any of the
Company's  own  designers to develop  advanced  innovative  products on a timely
basis, could result in a significant  adverse impact on the Company's  operating
results. The inability to secure enough components to build products,  including
new products, in the quantities and configurations required, or to produce, test
and  deliver  sufficient  products  to meet  demand  in a timely  manner,  would
adversely affect the company's net revenues and operating results.

     To secure  components for  development,  production and introduction of new
products,  the Company  frequently makes advanced  payments to certain suppliers
and often enters into noncancelable  purchase  commitments with vendors early in
the  design   process.   Due  to  the   variability   of  material   requirement
specifications  during the design  process,  the  Company  must  closely  manage
material purchase commitments and respective delivery schedules. In the event of
a delay or flaw in the design process,  the Company's operating results could be
adversely   affected  due  to  the   company's   obligations   to  fulfill  such
noncancelable  purchase  commitments.  Once a hardware  product is developed the
Company must rapidly bring it to volume  manufacturing,  a process that requires
accurate forecasting of both volumes and configurations,  among other things, in
order to achieve acceptable yields and costs. Upon introduction of new products,
the Company must also manage the transition  from older,  displaced  products to
minimize  disruptions  in customer  ordering  patterns,  reduce  levels of older
product  inventory,  and ensure that  adequate  supplies of new  products can be
delivered to meet 

                                       7
<PAGE>

customer  demand.  The  ability  of the  Company  to match  supply and demand is
further  complicated by the need to take pricing  actions and the variability of
timing of customer orders. As a result, the Company's operating results could be
adversely affected if the Company is not able to correctly  anticipate the level
of demand for the mix of products.  Because the Company is continuously  engaged
in this product development, introduction, and transition process, its operating
results may be subject to considerable  fluctuation,  particularly when measured
on a quarterly basis.

     The  computer  systems  offered  by Sun  generally  are the  result of both
hardware and software  development,  so that delays in software  development can
delay the  Company's  ability to ship new hardware  products.  Adoption of a new
release of an operating system may require effort on the part of the customer as
well as  software  porting by  software  vendors  providing  applications.  As a
result,  the timing of conversion to a new release is inherently  unpredictable.
Moreover,  delays  in  adoption  of a new  release  of an  operating  system  by
customers can limit the acceptability of hardware products tied to that release.
In either  situation,  the  future  operating  results of the  Company  could be
adversely affected.

Competition

     The market for the Company's products and services is intensely competitive
and subject to continuous, rapid technological change, short product life cycles
and frequent product performance  improvements and price reductions.  Due to the
breadth of Sun's  product line and the  scalability  of its products and network
computing  model,  the Company  competes in many segments of the computer market
across a broad spectrum of customers.  The  requirements  of those customers and
the basis of competition varies widely depending on the market segment and types
of users.

     Sun's  traditional  customer base has been in the technical and  scientific
markets.  Competition in this segment is based primarily on system  performance,
price/performance,   availability  and  performance  of  application   software,
robustness of the software  development  environment,  system  expandability and
upgradeability,  adherence to standards,  graphics  features and performance and
product quality and reliability. Increasingly, Sun is finding that its strengths
in technical markets,  particularly software development,  design automation and
decision support,  along with its network computing focus are enabling expansion
into  mission  critical  enterprise  applications.   Sun's  competitors  in  the
technical and  scientific  markets are primarily  Hewlett-Packard  Company (HP),
International Business Machines Corporation (IBM), Digital Equipment Corporation
(DEC) and Silicon Graphics, Inc. (SGI).

     Sun has been making inroads into  commercial  markets both with Global 1000
companies which are downsizing and  distributing  their computer  resources,  as
well  as  with  smaller   companies   which  are  upsizing  and  increasing  the
capabilities of their network computing systems.  Traditionally,  competition in
these markets has been based on price/performance, capabilities and stability of
the systems software, product quality and reliability,  ease of system operation
and  administration,  service  and  support,  availability  and  performance  of
applications  and  middleware,   database  performance,   global  marketing  and
distribution  capabilities,  and  corporate  reputation  and  name  recognition.
Increasingly,  companies which are downsizing  their  operations are focusing on
distributing  their  computing  capabilities  and  adopting  a model of  network
computing.   Companies  which  are  upsizing   typically  are  increasing  their
experience in managing larger heterogeneous  environments.  In addition,  Sun is
continuing  to expand into the Internet and intranet  markets.  As a result,  in
both the upsizing and downsizing competitive scenarios, networking capabilities,
internet  and  intranet  capabilities  and  the  ability  to  obtain  all of the
traditional  security,  stability  and  administrative  features  of  a  central
computing  model  in  a  networked  environment  are  significant  factors  that
influence the buying decision and the relative  strength of the competition.  In
both upsizing and  downsizing  opportunities,  Sun's  competition  tends to come
principally from IBM, HP, and DEC, as well as other mini and mainframe  computer
suppliers.  In addition, the Company is facing increasing competition from these
competitors  as well as from  personal  computer  manufacturers  such as  Compaq
Computer  Corporation  and Dell Computer  Corporation,  with respect to products
based  on  microprocessors  from  Intel  Corporation  coupled  with  Windows  NT
operating system software from Microsoft Corporation. These products demonstrate
the  viability  of  certain  networked  personal  computer  solutions  and  have
increased the competitive  pressure,  particularly in the Company's  workstation
and lower-end server product lines.

     Sun has also  encouraged  the  proliferation  of its SPARC  technology as a
standard in the computer  marketplace  by licensing  much of the  technology and
promoting open interfaces to the Solaris  operating  environment,  as well as by
offering  microprocessors and enabling technologies to third party customers. As
a result, several licensees also offer SPARC/Solaris based products that compete
directly with Sun's products primarily in the desktop markets.

     The  Company  expects  that the markets for its  products,  technology  and
services as well as its competitors within such markets, will continue to change
as the combination of these downsizing and 

                                       8
<PAGE>

upsizing  trends shift customer  buying  patterns to network  centric  employing
multiple platform  networks.  Competition in these markets will also continue to
intensify as Sun and its competitors aggressively position themselves to benefit
from this  shifting  of customer  buying  patterns  and  demand.  The ability to
continue to develop  leading edge products and rapidly bring them to market will
continue to have a significant impact on Sun's competitiveness and its operating
results. In addition,  Sun expects to see continued performance  improvements in
microprocessor  technology and products  introduced by Intel and Motorola,  Inc.
Such products,  coupled with enhanced  operating systems software from Microsoft
and other competitors,  are expected to continue to provide competitive pressure
throughout  the Company's  product range.  The Company  expects this pressure to
continue  to  intensify  in fiscal  1998 with the  availability  of Pentium  Pro
systems running Windows NT server software. While many other technical,  service
and support  capabilities  affect a  customer's  buying  decision,  Sun's future
operating  results  will depend,  in part,  on its ability to compete with these
technologies.

     In order to remain competitive in a rapidly changing industry,  the Company
is  continually  improving  and changing its business  practices,  processes and
information systems. In this regard, the Company has begun to implement a number
of new business  practices  and a series of related  information  systems;  such
activities  are currently  planned to be fully  operational in the first half of
fiscal 1999.  Implementing  a number of new business  practices and  information
systems is a complex  process,  affecting  numerous  operational  and  financial
systems and  processes as well as  requiring  comprehensive  employee  training.
While  the  Company  tests  these  new  systems  and  processes  in  advance  of
implementation,  there are  inherent  limitations  in the  Company's  ability to
simulate a full-scale operating environment in advance of system cutover. To the
extent that the Company  encounters  problems  after  introduction  of these new
systems and practices that prevent or limit their full utilization,  there could
be a material, adverse impact on the Company's results.

Patents and Licenses

     Sun  currently  holds a number of U.S.  and  foreign  patents  relating  to
various aspects of its products and technology.  While the Company believes that
such patent  protection is important,  it also believes that patents are of less
competitive   significance   than  such   factors  as   innovative   skills  and
technological expertise.

     As is common in the  computer  industry,  the Company has from time to time
been notified that it may be infringing  certain patents and other  intellectual
property rights of others, although no material litigation has arisen out of any
of these claims. Several pending claims are in various stages of evaluation. The
Company is evaluating the desirability of entering into licensing  agreements in
certain of these cases. Based on industry practice, the Company believes that in
most  cases  any  necessary  licenses  or  other  rights  could be  obtained  on
commercially  reasonable terms. However, no assurance can be given that licenses
can be obtained  on  acceptable  terms or that  litigation  will not occur.  The
failure to obtain necessary  licenses or other rights, or litigation arising out
of  such  claims,  could  have  a  material  adverse  effect  on  the  Company's
operations.

     Sun has entered into separate  patent  exchange  agreements  with IBM, Cray
Research,  Inc.  (Cray) and  Fujitsu.  Under each  agreement,  the parties  have
granted  to each  other  non-exclusive,  worldwide  rights to  patents  in their
respective patent  portfolios.  These agreements cover patents issued or applied
for  during  certain  limited  periods  as  specified  in  the  agreements.  The
agreements  with Cray and Fujitsu  are  royalty  free.  The  agreement  with IBM
expired at the end of fiscal 1995 and the licenses to the patents  thereunder do
not apply to the patents of IBM or the Company applied for after that date.

     In  March  1990,  Texas  Instruments   Incorporated  (TI)  alleged  that  a
substantial  number of the Company's  products infringe certain of TI's patents.
Based on its discussions  with TI, the Company  believes that it will be able to
negotiate a license  agreement  with TI, if  necessary,  and that the outcome of
this matter will not have a material adverse effect on Sun's financial  position
or its results of  operations  or cash flows in any given  fiscal  year.  Such a
negotiated  license  may or may not  have a  material  adverse  impact  on Sun's
results of operations  or cash flows in a given fiscal  quarter  depending  upon
various  factors  including,  but not  limited to, the  structure  and amount of
royalty payments,  offsetting  consideration from TI, if any, and the allocation
of royalties  between past and future  product  shipments,  none of which can be
forecast with reasonable certainty at this time.

Employees

                                       9
<PAGE>

     As of  June  30,  1997,  Sun  employed  approximately  21,500  people.  The
Company's  future  operating  results  will depend on its ability to continue to
broaden and develop senior  management to attract and retain skilled  employees,
and on the  ability  of its  management  and  key  employees  to  manage  growth
successfully  through the  enhancement  of  management  information  systems and
financial  controls.  The Company  expects to continue to increase its number of
employees to support demand creation programs,  service and support  operations,
and overall projected  growth.  None of Sun's employees in the United States are
represented by a labor union.


                                       10
<PAGE>


ITEM 2.  PROPERTIES

     Sun conducts its worldwide  operations  using a  combination  of leased and
owned  facilities.  The Company  believes that while it currently has sufficient
facilities  to conduct its  operations  during  fiscal 1998, it will continue to
lease  and  acquire  owned  facilities  throughout  the  world  as its  business
requires.  Properties owned by the Company consist of an  approximately  260,000
square foot  facility on  approximately  20 acres in Palo Alto,  California;  an
approximately  227,000  square  foot  facility  on  approximately  30  acres  in
Linlithgow,   Scotland;   an  approximately   30,000  square  foot  facility  on
approximately 2.5 acres in Bagshot,  England;  40 acres in Farnborough  England;
two separate parcels of land in Newark, California of approximately 90 acres and
60 acres, approximately 1,000,000 square feet on approximately 55 acres in Menlo
Park,  California;   approximately  120  acres  in  Broomfield,   Colorado;  and
approximately  158  acres  in  Burlington,  Massachusetts.  Sun  also  plans  on
acquiring  an  approximately  82 acre  site in Santa  Clara,  California  and an
additional  48 acre site in Newark,  California.  The Company has  approved  the
construction of an approximately  525,000 square foot facility on one of its Bay
Area sites,  an  approximately  500,000 square feet facility on its  Broomfield,
Colorado site, an approximately  475,000 square feet facility on its Burlington,
Massachusetts site and approximately 225,000 square foot manufacturing  facility
on one of its Newark,  California  parcels.  Total cost for these facilities are
expected to be approximately $300 to $600 million.  Sun leases approximately 230
sales and  service  offices  throughout  the world  aggregating  about 3 million
square  feet.  Sun also  leases  approximately  3  million  square  feet for its
research and  development  and  manufacturing  facilities,  primary in Milpitas,
Sunnyvale, San Jose and Mountain View, California and Chelmsford, Massachusetts.
Sun's  California   manufacturing  plant,  the  majority  of  its  research  and
development  facilities,  its Corporate headquarters and other critical business
operations are located near major earthquake faults.  Operating results could be
materially adversely impacted in the event of a major earthquake.

ITEM 3.  LEGAL PROCEEDINGS

      Not applicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not applicable


                                       11
<PAGE>


                      EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>

     The  following  sets forth  certain  information  regarding  the  executive
officers of the Company as of September 16, 1997:
<CAPTION>

             Name                 Age                             Position
<S>                                <C>   <C>                                                       
Scott G. McNealy                   42    Chairman of the Board of Directors, President and Chief
                                         Executive Officer, Sun Microsystems, Inc.

Kenneth M. Alvares                 53    Vice President, Human Resources, Sun Microsystems, Inc.

Alan E. Baratz                     42    President, JavaSoft

Mel Friedman                       59    Vice President, Worldwide Operations, Sun Microsystems
                                         Computer Company

Lawrence W. Hambly                 51    President, SunService Division

Masood A. Jabbar                   47    Vice President, Chief Financial Officer, Sun Microsystems
                                         Computer Company

Michael E. Lehman                  47    Vice President, Chief Financial Officer, Sun Microsystems,
                                         Inc.

Michael H. Morris                  49    Vice President, General Counsel and Secretary, Sun
                                         Microsystems, Inc.

Alton D. Page                      41    Vice President, Treasurer, Sun Microsystems Inc.

Frank Pinto                        52    Vice President, North American Field Operations, Sun
                                         Microsystems Computer Company

William J. Raduchel                51    Vice President, Corporate Planning and Development and
                                         Chief Information Officer, Sun Microsystems Inc.

George Reyes                       43    Vice President, Corporate Controller, Sun Microsystems,
                                         Inc.

Joseph P. Roebuck                  61    Vice President, Worldwide Field Operations, Sun
                                         Microsystems Computer Company

Edward Saliba                      48    Vice President, Finance and Operations, SunSoft, Inc.

Janpieter T. Scheerder             48    President, SunSoft, Inc.

John C. Shoemaker                  54    Vice President, General Manager Enterprise Servers and
                                         Storage Group, Sun Microsystems Computer Company

Chester J. Silvestri               49    President, Sun Microelectronics

Edward T. Zander                   50    President, Sun Microsystems Computer Company

</TABLE>

     Mr.  McNealy is a founder of the  Company and has served as Chairman of the
Board of Directors,  President and Chief Executive  Officer since December 1984,
as President and Chief Operating Officer from February 1984 to December 1984 and
as Vice President of Operations from February 1982 to February 1984. Mr. McNealy
has  served as a  Director  of the  Company  since the  incorporation  of Sun in
February 1982.

     Mr. Alvares has served as Vice  President,  Human  Resources of the Company
since June  1992.  From 1990 to June 1992,  he served as Vice  President,  Human
Resources,  Nichols Institute. He held various positions at Frito-Lay, Inc. from
1984 to 1990, including Vice President of Personnel from 1987 to 1990.

     Mr. Alan Baratz has served as President,  JavaSoft,  since  February  1996.
From August 1994 to November  1995,  Mr.  Baratz  served as President  and Chief
Executive  Officer of Delphi  Internet  Services  Corp.,  an  Internet  services
provider.  From  July 1993 to July  1994,  Mr.  Baratz  served  as

                                       12
<PAGE>

Director of Strategic Development for IBM Corporation. From January 1991 to June
1993, he served as a Director of High Performance Computing and Communication of
IBM Corporation.

     Mr.  Friedman has served as Vice  President,  Worldwide  Operations  of Sun
Microsystems  Computer Company since April 1996. Prior to such time, since 1989,
Mr.  Friedman served the Company in various  positions  including Vice President
Supply  Management,  Vice  President  California  Operations  and Vice President
Workstations, Servers and Graphics.

     Mr. Hambly has served as President,  SunService, a division of the Company,
since  July  1993.  From July 1991 to July  1993,  he served as Vice  President,
Marketing  of Sun  Microsystems  Computer  Company  (formerly  Sun  Microsystems
Computer  Corporation).  From July 1988 to July 1991,  he served as President of
Sun  Microsystems  Federal,  Inc.  From April  1983 to July  1988,  he served in
various  sales  management  capacities  at the  Company,  most  recently as Vice
President, Western Area Sales.

     Mr. Jabbar has served as Vice President, and Chief Financial Officer of Sun
Microsystems  Computer  Company since June 1994. From July 1992 until June 1994,
Mr.  Jabbar served as Vice  President,  Finance and  Planning,  Worldwide  Field
Operations of Sun Microsystems Computer Company. From July 1991 to June 1992, he
served as Vice  President,  Finance  and  Administration,  United  States  Field
Operations for Sun  Microsystems  Computer Company and from October 1990 to June
1991,  he served as Director,  Finance and  Administration,  United States Field
Operations  for the Company.  From October  1989 to October  1990,  he served as
Director  of United  States  Field  Market for the  Company.  From April 1988 to
October 1989, he served as United  States Sales and Service  Controller  for the
company.  From  December  1986 to April  1988 he  served as  United  States  and
Intercontinental Sales Controller for the Company.

     Mr. Lehman has served as Vice President, and Chief Financial Officer of the
Company since  February  1994.  From June 1990 until  February  1994, Mr. Lehman
served as Vice President and Corporate Controller of the Company. From September
1989 to June 1990 he served as  Director of Finance  and  Administration  of Sun
Microsystems of California Ltd., one of the Company's Hong Kong subsidiaries. He
served as Assistant  Corporate  Controller of the Company from September 1988 to
August 1989 and as External Reporting Manager from August 1987 to August 1988.

     Mr. Morris has served as Vice  President,  General Counsel and Secretary of
the Company since October 1987.

     Mr.  Page has served as Vice  President,  Treasurer  of the  Company  since
February 1996. Prior to that time, Mr. Page was a Partner of Ernst & Young, LLP.

     Mr. Pinto has served as Vice President,  North American Field Operations of
Sun  Microsystems  Computer  Company since July 1995.  From January 1993 to June
1995, Mr. Pinto served as Vice  President,  Northeast Area for Sun  Microsystems
Computer  Company.  From June 1989 to December 1992, he served as Metro Regional
Director of the Company and from  November  1988 to June 1989,  he served as the
Company's District Manager, Northeast Major OEM District.

     Mr.  Raduchel  has  served  as  Vice  President,   Corporate  Planning  and
Development  and Chief  Information  Officer of the Company  since July 1991. In
addition,  from July 1991 to June  1992,  he  served  as Vice  President,  Human
Resources (acting). From June 1989 to July 1991, he served as Vice President and
Chief  Financial  Officer of the Company;  he was also acting Chief  Information
Officer of the Company  from  November  1990 to July 1991.  From October 1988 to
June 1989, he served as Vice President, Corporate Planning and Development. From
1985 to 1988, he served as Vice  President of Document  Systems in the Strategic
Business Office of Xerox Corporation.

     Mr. Reyes has served as Vice  President,  and  Corporate  Controller of the
Company  since April 1994.  From April 1992 to March 1994,  Mr.  Reyes served as
Audit  Director for the Company.  From April 1991 to April 1992, he was Director
of Finance for the Company's ICON  operations.  From June 1989 to April 1991, he
served as Assistant  Controller.  From July 1988 to June 1989, Mr. Reyes was the
Controller of the Company's General Systems Group. From March 1988 to June 1988,
Mr. Reyes served as the Company's Marketing Controller.

     Mr. Roebuck has served as Vice President, Worldwide Field Operations of Sun
Microsystems  Computer  Company  since April 1992.  From  November 1988 to April
1992,  he  served  as  Vice  President,  United  States  Field  Operations,  Sun
Microsystems  Computer Company and from January 1986 to November 1988, he served
as Vice President of Sales for the Company.

     Mr.  Saliba has  served as Vice  President,  Finance  SunSoft,  Inc.  since
February 1996. From May 1994 to February 1996, he served as Finance Director for
Sun Microelectronics. From May 1993 to

                                       13
<PAGE>

May  1994  he  served  as  Finance  Director  of  Worldwide  Operations  for Sun
Microsystems  Computer Company.  From June 1991 to May 1993 he served as Finance
Director for Sun Microsystems  Computer Company Engineering.  From April 1989 to
June 1991 he served as Finance Manager and Director East Coast Operations.

     Mr. Scheerder has served as President, of SunSoft, Inc., since August 1995.
From April 1995 to August 1995, he served as Vice President,  Server Products of
Sun Microsystems  Computer Company. From March 1992 to April 1995, Mr. Scheerder
served as Vice President,  Solaris Products of SunSoft, Inc. From August 1991 to
March 1992, he was Director of Marketing and  Programming  of SunSoft,  Inc. and
from  February  1990 to August 1991, he was Vice  President,  Industry  Standard
System Development at Data General.

     Mr.  Shoemaker has served as Vice President,  General  Manager,  Enterprise
Server and Storage Group,  Sun  Microsystems  Computer Company since April 1996.
From July 1993 to April 1996 he served as Vice President,  Worldwide  Operations
of Sun Microsystems  Computer Company.  From June 1992 to July 1993 he served as
Vice President,  U.S. Operations of Sun Microsystems  Computer Company. From May
1990 to July 1993,  he also  served as Vice  President,  Finance  and  Planning,
Worldwide  Operations  (on an acting  basis since July 1992).  He served as Vice
President (acting),  Materials,  Worldwide  Operations from October 1991 to June
1992.  From  March  1989 to March  1990,  he served as  Senior  Vice  President,
Electronic Printing Worldwide Marketing,  Xerox Corporation.  From December 1986
to March 1989, he served as Vice President and General Manager, Document Systems
Business, Xerox Corporation.

     Mr. Silvestri has served as President, Sun Microelectronics,  a division of
the  Company,  since  February  1994.  From August 1992 to  February  1994,  Mr.
Silvestri  served as Vice  President,  SPARC Sales.  Prior to joining Sun,  from
December 1986 to August 1992, he served as Vice  President and General  Manager,
Technology  Products for MIPS Computer Systems,  Inc., later acquired by Silicon
Graphics Incorporated.

     Mr. Zander has served as President, Sun Microsystems Computer Company since
February  1995.  From July 1991 to February 1995, Mr. Zander served as President
of SunSoft,  Inc. From October 1987 to July 1991, he served as Vice President of
Corporate Marketing of the Company.


                                       14
<PAGE>

                                     PART II

ITEM 5.      MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS

     The  information  required by this item is incorporated by reference to the
inside back cover of Sun's 1997 Annual Report to Stockholders.  At September 16,
1997 there were 8,521 stockholders of record.

     The  following is a summary of all sales of the  Company's  Common Stock by
the Company's  directors and executive officers who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended, during the fiscal quarter ended
June 30, 1997:

                                                                  Number of
     Officer                    Date               Price         Shares Sold
     -------                    ----               -----         -----------
Kenneth Alvares                5/16/97            $32.00           15,000
                               5/16/97            $32.1875         15,000
                               5/27/97            $33.93750        10,000
Robert Long                    5/16/97            $31.875          6,338
Scott McNealy                  5/1/97             $28.50           600,000
Frank Pinto                    5/29/97            $33.50           12,000
                               5/29/97            $33.50           8,000
                               5/29/97            $33.50           5,200
                               5/29/97            $33.50           4,800
George Reyes                   5/6/97             $30.375          920
                               5/6/97             $30.375          1,040
                               5/6/97             $30.375          4,800
Edward Saliba                  5/16/97            $31.875          4,800
                               5/16/97            $31.875          4,800
                               5/16/97            $31.875          2,400
                               5/16/97            $31.875          800
                               5/16/97            $31.875          1,840
Janpieter Scheerder            4/22/97            $26.125          12,000
                               5/29/97            $33.375          936
John Shoemaker                 2/10/97            $33.815          8,000
                               2/20/97            $34.065          11,000
                               2/20/97            $34.190          1,000
                               5/23/97            33.57            8,000
Chester Silvestri              1/22/97            $33.375          5,000
                               1/22/97            $33.250          2,000
                               1/22/97            33.13            2,000
                               1/22/97            $33.00           18,000
                               1/22/97            $33.50           5,000
                               1/22/97            $33.00           8,000
                               5/14/97            $32.00           20,000

                                       15
<PAGE>


                                                                  Number of
     Officer                    Date               Price         Shares Sold
     -------                    ----               -----         -----------

Edward Zander                  1/21/97            $32.0625         10,000
                               1/21/97            33.25            6,000
                               1/21/97            $31.95           10,000
                               4/22/97            27               10,000
                               4/23/97            27.5             10,000
                               4/29/97            $28.5625         7,200
                               5/7/97             30.56            10,000
                               5/7/97             $31.00           10,000
                               5/13/97            $30.9375         10,000
                               5/13/97            31.31            20,000





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

ITEM 6.      SELECTED FINANCIAL DATA

     The  information  required by this item is incorporated by reference to the
information included under the caption "Historical Financial Review" on pages 18
and 19 of Sun's 1997 Annual Report to Stockholders.

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS

     The  information  required by this item is incorporated by reference to the
information included under the caption "Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations" on pages 20 through 25 of Sun's
1997 Annual Report to Stockholders.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item, with the exception of the subsequent
events described here, is incorporated by reference to the information  included
under the captions  "Consolidated  Statements of  Income","Consolidated  Balance
Sheets",  "Consolidated  Statements of Cash Flows",  "Consolidated Statements of
Stockholders' Equity",  "Notes to Consolidated Financial  Statements"and "Report
of Ernst & Young LLP, Independent Auditors" on pages 26 through 44 of Sun's 1997
Annual Report to Stockholders.

     During September 1997 the Company  acquired all of the outstanding  capital
stock of  Integrity  Arts,  Inc.  The  transaction  will be  accounted  for as a
purchase  and, on this basis,  the purchase  price will be allocated to tangible
and intangible assets, and in-process research and development.

                                       16
<PAGE>

     On August 22, 1997 the Company  signed a  definitive  agreement to purchase
substantially  all of the assets and certain  liabilities  of Chorus Systems SA,
Chorus  Systems KK and Chorus  Systems,  Inc.  Upon and subject to closing,  the
transaction will be accounted for as a purchase and, on this basis, the purchase
price will be  allocated  to tangible  and  intangible  assets,  and  in-process
research and development. The closing of this acquisition is contingent upon the
completion of various closing conditions

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     Not applicable.


                                       17
<PAGE>

                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information regarding directors of the Company is incorporated by reference
from the  information  contained  under the caption  "Election of  Directors" in
Sun's  1997  Proxy   Statement  for  the  Company's   1997  Annual   Meeting  of
Stockholders.  Current  executive  officers  of the  Registrant  found under the
caption  "Executive  Officers  of the  Registrant"  in  Part 1  hereof  is  also
incorporated by reference into this Item 10.

ITEM 11.     EXECUTIVE COMPENSATION

     The information required by this item is incorporated by reference from the
information  contained under the caption "Executive  Compensation" in Sun's 1997
Proxy Statement.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT

     The information required by this item is incorporated by reference from the
information contained under the caption "Information Concerning Solicitation and
Voting  -  Record  Date and  Outstanding  Shares"  and  "Security  Ownership  of
Management" in Sun's 1997 Proxy Statement.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference from the
information  contained  under  the  caption  "Executive  Compensation  - Summary
Compensation  Table",  "Certain  Transactions  With  Management" and "Employment
Contracts and Change-In-Control Arrangements" in Sun's 1997 Proxy Statement.


                                       18
<PAGE>

PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
             FORM 8-K

      (a)    The following documents are filed as part of this report:

             1.  Financial  statements that are incorporated herein by reference
                 to the following in Sun's 1997 Annual Report to Stockholders.

                 Consolidated  Statements  of Income for each of the three years
                 in the period ended June 30, 1997 (page 26).

                 Consolidated  Balance  Sheets at June 30,  1997 and 1996  (page
                 27).

                 Consolidated  Statements  of Cash  Flows  for each of the three
                 years in the period ended June 30, 1997 (page 28).

                 Consolidated Statements of Stockholders' Equity for each of the
                 three years in the period ended June 30, 1997 (page 29).

                 Notes to Consolidated  Financial  statements  (pages 30 through
                 43).

                 Report of Ernst & Young LLP, Independent Auditors (page 44).

             The  Company's  1997 Annual  Report to  Stockholders  is not deemed
             filed as part of this report  except for those  parts  specifically
             incorporated herein by reference.

             2.  Financial Statement schedule:

                 Page   Schedule     Title
                 --------------------------
                 S-1          II     Valuation and Qualifying Accounts


             All  other   schedules   have  been  omitted   since  the  required
             information is not present or is not present in amounts  sufficient
             to require  submission of the schedule,  or because the information
             required  is  included in the  consolidated  financial  statements,
             including the notes thereto.

                                       19
<PAGE>


3.  Exhibits

    Exhibit
     Number                             Description
     ------                             -----------
                 
3.2(9)           Bylaws  of  Registrant,   as  amended.  3.3(8)  Certificate  of
                 Amendment  of the  Restated  Certificate  of  Incorporation  of
                 Registrant.

3.3(19)          Registrant's  Amended and Restated Certificate of Incorporation
                 (as amended to date).

4.3(9)           First Amended and Restated Common Shares Rights Agreement dated
                 December 14, 1990,  between  Registrant  and The First National
                 Bank of Boston.

4.4(11)          Amendment dated as of October 28, 1991 to the First Amended and
                 Restated  Common Shares  Rights  Agreement  dated  December 14,
                 1990.

4.5(12)          Second  Amendment  dated  as of  August  5,  1992 to the  First
                 Amended and  Restated  Common  Shares  Rights  Agreement  dated
                 December 14, 1990.

4.6(17)          Third  Amendment  dated as of November 2, 1994 to First Amended
                 and Restated Common Shares Rights  Agreement dated December 14,
                 1990.

4.7(17)          Fourth  Amendment dated as of November 1, 1995 to First Amended
                 and Restated Common Shares Rights  Agreement dated December 14,
                 1990.

10.1(1)          Technology  Transfer Agreement dated February 27, 1982, for the
                 purchase by the Registrant of certain  technology for cash, and
                 related Assumption Agreement dated February 27, 1982.

10.3(1)          Form of Founders' Restricted Stock Purchase Agreement.

10.8(1)          Registration Rights Agreement dated as of November 26, 1984.

10.8A(1)         Amendment to Registration Rights Agreement.

10.9(3)          Registrant's   1982  Stock   Option  Plan,   as  amended,   and
                 representative forms of Stock Option Agreement.

10.10(3)         Registrant's   Restricted   Stock   Plan,   as   amended,   and
                 representative form of Stock Purchase Agreement.

10.11(10)        Registrant's 1984 Employee Stock Purchase Plan, as amended.

10.21(1)         License   Agreement   dated  July  26,  1983,  by  and  between
                 Registrant and The Regents of the University of California.

10.22(1)         Software Agreement effective as of April 1, 1982 by and between
                 Registrant and American  Telephone and Telegraph  Company,  and
                 Supplemental Agreement dated effective as of May 28, 1983.

10.48(3)         Registrant's 1987 Stock Option Plan and representative  form of
                 Stock Option Agreement.

10.56(4)         Building  Loan  Agreement  dated  May  11,  1989,  between  Sun
                 Microsystems  Properties,  Inc.  and the Toyo Trust and Banking
                 Company  Limited,  New York Branch and the  related  Promissory
                 Note;  First Deed of Trust,  Assignment  of  Leases,  Rents and
                 Other  Income and  Security  Agreement;  Guaranty  of  Payment;
                 Guaranty of Completion  (Sun  Microsystems  Properties,  Inc.);
                 Guaranty  of  Completion  (Sun  Microsystems,  Inc.;  Shortfall
                 Agreement and Indemnity.

                                       20
<PAGE>

    Exhibit
     Number                             Description
     ------                             -----------

10.64(8)         Registrant's    1988   Directors'   Stock   Option   Plan   and
                 representative form of Stock Option Agreement.

10.65(16)        Registrant's  1990 Employee  Stock Purchase Plan, as amended on
                 August 9, 1995.

10.66(15)        Registrant's  1990 Long-Term  Equity Incentive Plan, as amended
                 on August 15, 1996.

10.66A(10)       Representative form of agreement to Registrant's 1990 Long-Term
                 Equity Incentive Plan.

10.73(10)        Representative  form of letter  dated June 25, 1991 between the
                 Registrant  and the insurance  companies who are parties to the
                 Note and Warrant  Purchase  Agreements dated September 16, 1986
                 and December 15, 1989.

10.74(10)        Software  Distribution  Agreement dated January 28, 1991 by and
                 between the Registrant and UNIX Systems Laboratories, Inc.

10.77(14)        Lease Agreement between BNP Leasing Corporation and Registrant,
                 effective as of September 25, 1992.

10.82            Restated  Revolving  Credit  Agreement  dated  August 27, 1997,
                 between the  Registrant;  Citicorp USA,  Inc.;  Bank of America
                 National Trust and Savings Association; ABN AMRO Bank N.V.; The
                 First  National  Bank of  Boston;  Barclays  Bank  PLC;  Morgan
                 Guaranty Trust Company of New York; The Fuji Bank Limited,  San
                 Francisco  Agency:  The Toyo Trust and  Banking Co.  Ltd.:  The
                 Sumitomo Bank, Limited;  The Sakura Bank Limited, San Francisco
                 Agency; Banque Nationale de Paris;  Bayerische  Vereinsbank AG,
                 Los Angeles Agency; The Industrial Bank of Japan,  Limited, San
                 Francisco  Agency;  The  Bank  of New  York;  Cariplo  -  Cassa
                 Di-Risparmio Delle Provincie Lombade SPA; Corestes Bank NA; The
                 Northern  Trust  Company,  Royal Bank Of Canada,  Union Bank of
                 California.

10.84            Registrant's  Non-Qualified  Deferred  Compensation  Plan dated
                 July 1, 1995,  as amended  and  restated  effective  October 1,
                 1997.

10.85(16)        Registrant's     Section    162    (m)    Executive     Officer
                 Performance-Based Bonus Plan dated August 9, 1995.

10.86(15)        First  Amendment  to  Lease   Agreement   between  BNP  Leasing
                 Corporation and Registrant, effective as of September 23, 1994.

10.87            The Sun  Microsystems,  Inc.  Equity  Compensation  Acquisition
                 Plan, as amended.

10.89(18)        Form of Change of Control Agreement  executed by each corporate
                 executive officer of Registrant.

10.90(18)        Form of Change of Control Agreement executed by Chief Executive
                 Officer of Registrant.

10.91(18)        Form of Vice President Change of Control Severance Plan.

10.92(18)        Form of Director - Level Change of Control Severance Plan.

11               Statement of Computation of Earnings per Share.

13.0             1997 Annual Report to Stockholders  (to be deemed filed only to
                 the extent required by the instructions to exhibits for reports
                 on Form 10-K).

22.0             Subsidiaries of Registrant.

                                       21
<PAGE>

23.1             Consent of Ernst & Young LLP, Independent Auditors.

24               Power of Attorney (See page 25).

27               Financial Data Schedule.


                                       22


<PAGE>


(1)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-1 (No. 33-2897), which became effective March 4, 1986.

(2)      Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to the Registrant's  Annual Report on Form 10-K for the fiscal
         year ended June 30, 1987.

(3)      Incorporated  by reference  to Exhibits  19.1,  19.3 or 19.4,  filed as
         Exhibits  to the  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter ended December 25, 1987.

(4)      Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to the Registrant's  Annual Report on Form 10-K for the fiscal
         year ended June 30, 1989.

(5)      Not used.

(6)      Not used.

(7)      Not used.

(8)      Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to the Registrant's  Annual Report on Form 10-K for the fiscal
         year ended June 30, 1990.

(9)      Incorporated  by reference to Exhibits 3.1 and 4.1 filed as exhibits to
         the Registrant's Report on Form 8-K filed on December 28, 1990.

(10)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to the Registrant's  Annual Report on Form 10-K for the fiscal
         year ended June 30, 1991.

(11)     Incorporated  by  reference  to Exhibit  4.0 filed as an exhibit to the
         Registrant's  Quarterly  Report  on Form  10-Q  for the  quarter  ended
         September 27, 1991.

(12)     Incorporated  by  reference  to  Exhibit 3 filed as an  exhibit  to the
         Registrant's  Form 8 Amendment No. 3 to Registration  Statement on Form
         8-A filed on September 16, 1992.

(13)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to the Registrant's  Annual Report on Form 10-K for the fiscal
         year ended June 30, 1992.

(14)     Not used.

(15)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
         ended June 30, 1996.

(16)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
         ended June 30, 1995.

(17)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits  to the  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter ended October 1, 1995.

(18)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to Registrant's  Quarterly Report on Form 10-Q for the quarter
         ended December 29, 1996.

(19)     Incorporated  by reference to  identically  numbered  exhibits filed as
         exhibits to Registrant's  Quarterly Report on Form 10-Q for the quarter
         ended September 29, 1996.

                                       23

<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the  registrant  has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                    SUN MICROSYSTEMS, INC.
                                    Registrant

September 25, 1997


                                 By:          /s/ MICHAEL E. LEHMAN
                                      ------------------------------------------
                                                  Michael E. Lehman
                                      Vice President and Chief Financial Officer

                                       24
<PAGE>


POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints  Scott G. McNealy and Michael E. Lehman jointly
and severally, his attorneys-in-fact,  each with the power of substitution,  for
him in any and all  capacities,  to sign any  amendments  to this Report on Form
10-K, and file the same, with exhibits thereto and other documents in connection
therewith,  with the Securities and Exchange  Commission,  hereby  ratifying and
confirming  all  that  each  of said  attorneys-in-fact,  or his  substitute  or
substitutes, may do or cause to be done by virtue hereof.
<TABLE>

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons,  which include the Chief
Executive  Officer,  the Chief Financial Officer and Corporate  Controller and a
majority  of the Board of  Directors,  on behalf  of the  registrant  and in the
capacities and on the dates indicated.
<CAPTION>

     Signature                             Title                                Date
     ---------                             -----                            

<S>                          <C>                                         <C> 
  /s/ SCOTT G. McNEALY       Chairman of the Board of Directors,         September 25, 1997
--------------------------   President and Chief Executive Officer
     (Scott G. McNealy)      (Principal Executive Officer)

 /s/ MICHAEL E. LEHMAN       Vice President and Chief Financial          September 25, 1997
--------------------------   Officer (Principal Financial Officer)
    (Michael E. Lehman)                

 /s/ GEORGE REYES            Vice President and Corporate Controller     September 25, 1997
--------------------------   (Principal Accounting  Officer)
    (George Reyes)       
                                   
 /s/ L. JOHN DOERR           Director                                    September 25, 1997
--------------------------
    (L. John Doerr)

 /s/ JUDITH L. ESTRIN        Director                                    September 25, 1997
--------------------------
    (Judith L. Estrin )

 /s/ ROBERT J. FISHER        Director                                    September 25, 1997
--------------------------
    (Robert J. Fisher)

 /s/ ROBERT L. LONG          Director                                    September 25, 1997
--------------------------
   (Robert L. Long)
   
 /s/ M. KENNETH OSHMAN       Director                                    September 25, 1997
--------------------------
    (M. Kenneth Oshman)

 /s/ A. MICHAEL SPENCE       Director                                    September 25, 1997
--------------------------
    (A. Michael Spence)

</TABLE>

                                       25
<PAGE>

<TABLE>

                                                                                                        SCHEDULE 2
                                              SUN MICROSYSTEMS, INC.

                                         VALUATION AND QUALIFYING ACCOUNTS
                                                  (in thousands)
<CAPTION>
                                                             Balance at    Charged to                  Balance at
                                                             Beginning     Costs and      Deduction/    End of
                      Description                            of Period      Expenses      Write-off     Period
<S>                                                           <C>           <C>            <C>          <C>    
Year ended June 30, 1995:
  Accounts receivable                                         $79,845       $186,993       $167,231     $99,607
allowances.........................                          ========       ========       ========    ========

Year ended June 30, 1996:
  Accounts receivable                                         $99,607       $195,840       $194,717    $100,730
allowances.........................                          ========       ========       ========    ========

Year ended June 30, 1997:
  Accounts receivable                                        $100,730       $273,959       $178,598    $196,091
allowances.........................                          ========       ========       ========    ========

</TABLE>
                                       26