<TABLE>

                                   SECURITIES AND EXCHANGE COMMISSION
                                         WASHINGTON, D.C. 20549

                                                FORM 10-Q
<CAPTION>
(Mark One) 

__X__Quarterly  report  pursuant to Section 13 or 15(d) of the  Securities  Exchange Act of 1934 for the
     quarterly period ended September 28, 1997 or

_____Transition  report  pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934 for the
     transition period from ______ to _______

                                     Commission file number:0-15086

                                         SUN MICROSYSTEMS, INC.
                         (Exact Name of registrant as specified in its charter)
<S>                                                                 <C>
                  Delaware                                                       94-2805249
(State or other jurisdiction of incorporation or organization)      (I.R.S. Employer Identification No.)

                                901 San Antonio Road Palo Alto, CA 94303
                         (Address of principal executive offices with zip code)

Registrant's telephone number, including area code:                                      (650) 960-1300

                                                   N/A
           (Former name, former address and former fiscal year, if changed since last report)

     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______

                                  APPLICABLE ONLY TO ISSUERS INVOLVED IN
                                      BANKRUPTCY PROCEEDINGS DURING
                                        THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and reports  required to be
filed by Section 12, 13 or 15(d) of the Securities  Exchange Act of 1934 subsequent to the  distribution
of securities under a plan confirmed by a court.

                                  YES______                  NO______

                                  APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares  outstanding of each of the issuer's  classes of common stock,  as of
the latest practical date.

                     Class                                      Outstanding at September 28, 1997
         Common Stock - $0.00067 par value                               374,630,828
</TABLE>


<PAGE>

                                      INDEX




                                                                            PAGE

   COVER PAGE                                                                1

   INDEX                                                                     2

   PART I - FINANCIAL INFORMATION

            Item 1 - Financial Statements
                     Condensed Consolidated Balance Sheets                   3
                     Condensed Consolidated Statements of Income             4
                     Condensed Consolidated Statements of Cash Flows         5
                     Notes to Condensed Consolidated Financial Statements    6

            Item 2 - Management's Discussion and Analysis of
                     Results of Operations and Financial Condition           8

   PART II - OTHER INFORMATION
            Item 1 - Legal Proceedings                                      13
            Item 5 - Other Information                                      13
            Item 6 - Exhibits and Reports on Form 8 - K                     17

   SIGNATURES                                                               18


                                       2
<PAGE>








                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                             SUN MICROSYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)


                                                   September 28,       June 30,
                                                       1997              1997
                                                   ------------      -----------
                                                    (unaudited)
ASSETS
Current assets:
         Cash and cash equivalents                 $   513,845      $   660,170
         Short-term investments                        473,544          452,590
         Accounts receivable, net                    1,450,709        1,666,523
         Inventories                                   466,868          437,978
         Deferred tax assets                           293,159          286,720
         Other current assets                          277,921          224,469
                                                   -----------      -----------
              Total current assets                   3,476,046        3,728,450
Property, plant and equipment, at cost               1,760,844        1,658,341
Accumulated depreciation and amortization             (882,166)        (858,448)
                                                   -----------      -----------
                                                       878,678          799,893
Other assets, net                                      192,973          168,931
                                                   -----------      -----------
                                                   $ 4,547,697      $ 4,697,274
                                                   ===========      ===========



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
         Short-term borrowings                     $    24,242      $   100,930
         Accounts payable                              428,402          468,912
         Accrued liabilities                           824,858          963,012
         Other current liabilities                     299,812          316,184
                                                   -----------      -----------
              Total current liabilities              1,577,314        1,849,038
Long-term debt and other obligations                   120,488          106,299
Total stockholders' equity                           2,849,895        2,741,937
                                                   -----------      -----------
                                                   $ 4,547,697      $ 4,697,274
                                                   ===========      ===========

                             See accompanying notes


                                       3
<PAGE>


                             SUN MICROSYSTEMS, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)
                    (in thousands, except per share amounts)


                                                        Three Months Ended
                                                        ------------------
                                                    September 28,  September 29,
                                                          1997           1996
                                                       ----------     ----------
Net revenues                                           $2,098,604     $1,859,019
Cost and expenses:
         Cost of sales                                  1,027,434        972,101
         Research and development                         222,618        186,268
         Purchased in-process research and
                development                                52,184           --
         Selling, general and administrative              615,493        524,666
                                                       ----------     ----------

             Total costs and expenses                   1,917,729      1,683,035
Operating income                                          180,875        175,984
Interest income, net                                       10,571          5,472
                                                       ----------     ----------
Income before income taxes                                191,446        181,456
Provision for income taxes                                 83,013         58,006
                                                       ----------     ----------

Net income                                             $  108,433     $  123,390
                                                       ==========     ==========
Net income per common and
         and common - equivalent
         share                                         $     0.27     $     0.32
                                                       ==========     ==========

Common and common-equivalent
         shares used in the calculation
         of net income per share                          395,099        390,116
                                                       ==========     ==========

                             See accompanying notes.


                                       4
<PAGE>





<TABLE>
                                                   SUN MICROSYSTEMS, INC.
                                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (unaudited)
                                                       (in thousands)
<CAPTION>
                                                                        Three Months Ended
                                                                        ------------------
                                                                   September 28,   September 29,
                                                                         1997            1996
                                                                   -------------   -------------
<S>                                                                   <C>             <C>
Cash flow from operating activities:
         Net income                                                   $ 108,433       $ 123,390
         Adjustments to reconcile net income
                  to operating cash flows:
                  Depreciation, amortization and
                           other non-cash items                          86,803          86,887
                  Tax benefit of options exercised                       56,626           7,655
                  Other non-cash items                                   52,184            --
                  Net decrease (increase) in accounts receivable        215,814         (88,817)
                  Net increase in inventories                           (28,890)           (928)
                  Net (decrease) increase  in accounts payable          (40,510)         20,072
                  Net increase in other current
                           and non-current assets                       (61,277)        (35,988)
                  Net decrease in other current
                           and non-current liabilities                 (164,839)        (44,119)
                                                                      ---------       ---------
Net cash provided from operating activities                             224,344          68,152
                                                                      ---------       ---------
Cash flow from investing activities:
         Acquisition of property, plant and equipment                  (161,817)        (94,890)
         Acquisition of spare parts and other assets                    (33,962)         (8,119)
         Payment for acquisitions                                       (55,200)            --
         Acquisition of short-term investments                         (211,042)        (17,157)
         Maturities of short-term investments                           190,274         270,196
                                                                      ---------       ---------
Net cash (used by) provided from investing activities                  (271,747)        150,030
                                                                      ---------       ---------
Cash flow from financing activities:
         Issuance of common stock, net                                   31,594           8,595
         Acquisition of treasury stock                                  (79,745)       (271,344)
         Proceeds from employee stock purchase plans                     23,204          17,141
         Reduction of short - term borrowings, net                      (76,688)         (4,238)
         Proceeds from and reduction of long - term
                  borrowings and other                                    2,713         (36,445)
                                                                      ---------       ---------
Net cash used by financing  activities                                  (98,922)       (286,291)
                                                                      ---------       ---------
Net decrease in cash  and cash  equivalents                           $(146,325)      $ (68,109)
                                                                      =========       =========
Supplemental disclosures of cash flow information:
         Cash paid during the period for:
         Interest                                                     $     160       $   4,189
         Income taxes                                                 $  29,411       $  46,524
<FN>
                                       See accompanying notes.
</FN>
</TABLE>



                                                  5
<PAGE>







                             SUN MICROSYSTEMS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



BASIS OF PRESENTATION

         The  consolidated  financial  statements  include  the  accounts of Sun
         Microsystems,  Inc.  ("Sun" or the  "Company")  and its  wholly - owned
         subsidiaries.   Intercompany   accounts  and  transactions   have  been
         eliminated.  Certain amounts from prior years have been reclassified to
         conform to current year presentation.

         While the quarterly financial  information is unaudited,  the financial
         statements included in this report reflect all adjustments  (consisting
         of normal recurring  accruals) that the Company considers necessary for
         a fair  presentation  of the  results  of  operations  for the  interim
         periods  covered and of the  financial  condition of the Company at the
         date of the interim balance sheet.  The results for the interim periods
         are not necessarily  indicative of the results for the entire year. The
         information  included in this report should be read in conjunction with
         the  1997  Annual  Report  to  Stockholders  which is  incorporated  by
         reference in the Company's 1997 Form 10-K (as amended on Form 10-K/A).

INVENTORIES (in thousands)

                    September 28, 1997         June 30, 1997
                    ------------------         -------------
Raw materials            $250,951                 $236,900
                                            
Work in process            58,706                   50,577
                                            
Finished goods            157,211                  150,501
                         --------                 --------
                                            
                         $466,868                 $437,978
                         ========                 ========
                                     

INCOME TAXES

The Company accounts for income taxes under the liability method of Statement of
Financial  Accounting  Standards  No. 109. The provision for income taxes during
the interim periods considers  anticipated annual income before taxes,  earnings
of foreign subsidiaries  permanently  invested in foreign operations,  and other
differences.

STOCK SPLIT

The Company effected a two-for-one  stock split (effected in the form of a stock
dividend), to stockholders of record as of the close of the business on November
18, 1996.  Share and per-share  amounts  presented have been adjusted to reflect
the stock dividend.

RECENT PRONOUNCEMENTS

In 1997, Financial Accounting Standards No. 128 (FAS 128), "Earnings per Share,"
was issued and is effective for interim and annual periods ending after December
15,  1997.  The impact is expected to result in an increase in primary  earnings
per share of $.02 for the quarters  ended  September  28, 1997 and September 29,
1996.



                                       6

<PAGE>
ACQUISITIONS

On August 22, 1997, the Company  acquired all of the outstanding  stock of Diba,
Inc. for  $25,000,000 in cash. The  transaction  was accounted for as a purchase
and, on this basis,  the excess  purchase price over the estimated fair value of
net tangible  assets has been allocated,  based upon an independent  third-party
valuation,  to various  intangible  assets,  primarily  consisting  of purchased
in-process  research and  development  and  goodwill.  In  connection  with this
acquisition,  purchased  in-process  research and  development  of  $22,300,000,
associated  with products which had not achieved  technological  feasibility and
for which no alternative uses have been established by the Company,  was written
off.  Intangible  assets,  including  goodwill,  are being  amortized over three
years.  The results of  operations of Diba,  Inc.  from the date of  acquisition
through September 28, 1997 are included in the Company's  consolidated statement
of income and were not material to the Company.

On September  22, 1997,  the Company  acquired all of the  outstanding  stock of
Integrity  Arts, Inc. for $30,200,000 in cash. The transaction was accounted for
as a purchase and, on this basis,  the excess  purchase price over the estimated
fair value of net tangible assets has been allocated,  based upon an independent
third-party  valuation,  to various intangible assets,  primarily  consisting of
purchased  in-process research and development and goodwill.  In connection with
this acquisition, purchased in-process research and development of approximately
$29,900,000,  associated  with  products  which had not  achieved  technological
feasibility  and for which no  alternative  uses have  been  established  by the
Company,  was written off.  Intangible  assets,  including  goodwill,  are being
amortized over three years.  The results of operations of Integrity  Arts,  Inc.
from the date of  acquisition  through  September  28, 1997 are  included in the
Company's consolidated statement of income and were not material to the Company.

SUBSEQUENT EVENTS

On October  16,  1997,  the  Company  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 $1,000,000,000.  On October 24,
1997, the Registration  Statement became effective,  so that the Company may now
choose to offer,  from time to time, the securities and common stock 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.

On October 21, 1997, the Company  acquired  substantially  all of the assets and
liabilities  of  Chorus  Systems  S.A.  and its  wholly-owned  subsidiaries  for
approximately  $26,500,000 in cash. The  transaction  will be accounted for as a
purchase and, on this basis,  the excess  purchase price over the estimated fair
value  of net  tangible  assets  will  be  allocated,  based  on an  independent
third-party  valuation,  to various intangible assets,  primarily  consisting of
purchased in-process research and development and goodwill. Purchased in-process
research and development of approximately $13 million,  associated with products
which had not achieved  technological  feasibility  and for which no alternative
uses have been established by the Company, will be written off.

                                       7

<PAGE>




ITEM 2 - 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 net revenues:

                                          Three Months Ended,
                                          -------------------
                                     September 28, September 29,
                                          1997          1996
                                          ----          ----
Net revenues                             100.0%        100.0%
                                                     
Cost of sales                             49.0          52.3
                                         -----         -----
         Gross margin                     51.0          47.7
Research and development                  10.6          10.0
Purchased in-process research and                    
         development                       2.5           --
                                                     
Selling, general and administrative       29.3          28.2
                                         -----         -----
                                                     
Operating income                           8.6           9.5
Interest income, net                       0.5           0.3
                                         -----         -----
Income before income taxes                 9.1           9.8
Provision for income taxes                 3.9           3.2
                                         -----         -----
                                                     
         Net income                        5.2%          6.6%
                                         =====         =====
                                                 
The following sections contain forward-looking  statements within the meaning of
the  Private  Securities  Litigation  Reform Act of 1995.  Such  forward-looking
statements  involve risks and  uncertainties  such that actual  results may vary
materially.  Certain factors that may affect the Company's results and financial
condition  over the next few quarters are  discussed  under the caption  "future
operating  results"  below.  Other  factors  that may affect  such  results  and
financial  condition  are set  forth in the  Company's  1997  Annual  Report  to
Stockholders  which is  incorporated by reference in the Company's Form 10-K (as
amended on Form 10-K/A).

RESULTS OF OPERATIONS

Net revenues

Net  revenues  were  $2.099  billion  for the  first  quarter  of  fiscal  1998,
representing an increase of 12.9% over the corresponding  period of fiscal 1997.
The growth in revenues  resulted  primarily  from strong  demand for work group,
enterprise and departmental servers,  high-end desktop systems and from high-end
storage products. The remaining increase


                                       8

<PAGE>

reflects growth in revenues from other Sun businesses,  primarily  service.  The
12.9%  revenue  growth in the first  quarter  of fiscal  1998 was lower than the
corresponding  25.2%  revenue  growth rate  experienced  in the first quarter of
fiscal 1997 due mainly to a smaller backlog  entering the quarter,  coupled with
the  impacts  of foreign  currency  fluctuations  and  weaker  demand in certain
geographies as described below.

Domestic  net  revenues  increased  by 16.5% while  international  net  revenues
(including  United States exports) grew 9.1% in the first quarter of fiscal 1998
compared with the corresponding period of fiscal 1997. In U.S. dollars, European
net revenues  increased 5.8%,  Japanese net revenues  increased  10.3%,  and net
revenues in rest of world  increased  14.9% in the first  quarter of fiscal 1998
when compared with the corresponding periods of fiscal 1997. These increases are
due primarily to continued strengthening of the markets in Japan, Italy, Belgium
and  France.  The  increases  in U.S.  dollar  revenues  are net of the  foreign
currency impact of a strengthening  in the U.S. dollar within our major markets,
particularly  Japan and Europe. The foreign currency impact was partially offset
by pricing actions taken by the Company. The Company also experienced  weakening
demand in other parts of Europe, Southeast Asia and Latin America.

The  Company  generally  manages  currency  exposure  through the use of simple,
short-term forward foreign exchange and currency option contracts, the objective
of which is to minimize  the impact of currency  fluctuations  on the results of
operations.  As the Company  utilizes  projected  data to establish  its forward
exchange  and  currency   exchange   contracts,   variances  which  result  from
forecasting  differences and the extent of currency  movement during the quarter
could have a material  adverse  effect on the  results  of  operations  and cash
flows.

Gross margin

Gross margin was 51.0% for the first quarter of fiscal 1998, compared with 47.7%
for the  corresponding  period of fiscal 1997.  The increase in the gross margin
reflects the effects of increased revenues generated from higher margin servers,
desktop and storage  options,  as well as  continued  decreases  in costs of key
components, including CPUs and memory.

The factors  described above resulted in a favorable  impact on gross margin for
the first  quarter  of fiscal  1998.  The  Company  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 the Company 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 were $222.6 million in the first quarter
of fiscal 1998,  compared with $186.3  million for the  corresponding  period of
fiscal 1997. As a percentage of net  revenues,  R&D expenses  increased to 10.6%
for the first quarter of fiscal 1998 from 10.0% in the  corresponding  period of
fiscal 1997.  The dollar  increase in the first  quarter of fiscal 1998 over the
corresponding  period in fiscal 1997 primarily reflects  increased  expenditures
focused on the  development of hardware and software  products which utilize the
Java  architecture.  The remaining  increase in R&D expenses is due primarily to
continued   development  of  ULTRASparc  systems,   storage  products,   further
development   of  products   acquired   through   acquisitions,   and  increased
compensation due primarily to higher levels of R&D staffing.


                                       9

<PAGE>

Selling, general and administrative

Selling,  general and administrative  (SG&A) expenses were $615.5 million in the
first quarter of fiscal 1998 compared with $524.7 million for the same period of
fiscal 1997. As a percentage of net revenues,  SG&A expenses  increased to 29.3%
in the first  quarter of fiscal 1998 from 28.2% in the  corresponding  period of
fiscal 1997.  The dollar  increase in fiscal 1998 is primarily  attributable  to
increased compensation resulting from higher levels of headcount (principally in
the sales  organization)  in  addition  to  marketing  costs  related  to demand
creation programs. The increase is also due to costs incurred in connection with
the Company's ongoing efforts to improve business processes and cycle times. The
Company  expects to  continue  to hire  personnel  to further  expand its demand
creation programs and service support.

Purchased in-process research and development

Purchased  in-process  research  and  development  represents  the  write-off of
purchased  in-process  research and  development  associated  with the Company's
acquisitions  of Diba,  Inc. and  Integrity  Arts,  Inc. The Company  expects an
additional  in-process  research and development  write-off of approximately $13
million  in  connection  with  the  acquisition of  Chorus  Systems S.A. and its
wholly-owned subsidiaries.

Interest income, net

Net  interest  income was $10.6  million for the first  quarter of fiscal  1998,
compared with $5.5 million in net interest income for the  corresponding  period
in fiscal 1997. The increase in 1998 is primarily the result of higher  interest
earnings due to a larger average portfolio of cash and short-term investments.

Income taxes

The Company's effective income tax rate for the first quarter of fiscal 1998 was
33% before a $19.8 million tax charge  resulting from a non-recurring  write-off
of in-process research and development associated with the acquisitions of Diba,
Inc.  and  Integrity  Arts,  Inc.  The  effective  income tax rate for the first
quarter of fiscal 1998 including  these  acquisition-related  charges was 43.4%.
The  effective  tax rate for the  first  quarter  of  fiscal  1997 was 32%.  The
increase  in  the  overall  effective  tax  rate  to  33%  for  fiscal  1998  is
attributable to an increase in anticipated worldwide earnings without offsetting
tax credits or other tax savings.

FUTURE OPERATING RESULTS

The market for Sun'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 the Company's  product lines and the  scalability of its products and
network  computing model, Sun competes in many segments of the network computing
market across a broad spectrum of customers. The Company expects the markets for
its products and technologies,  as well as its competitors  within such markets,
will continue to change as the rightsizing trend shifts customer buying patterns
to network  based systems which often employ  solutions  from multiple  vendors.
Competition  in these  markets  will also  continue to  intensify as Sun and its
competitors,  principally  Hewlett-Packard  Corporation,  International Business
Machines Corporation, Digital Equipment Corporation, and Silicon Graphics, Inc.,
aggressively  position  themselves  to benefit  from this  shifting  of customer
buying patterns and demand.  The Company is also facing  competition  from these
competitors,  as well as other systems  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.  Finally,  the timing of  introductions  of new  products and services by
Sun's  competitors  may negatively  impact the future  operating  results of the
Company, particularly when such introductions occur in periods leading up to the
Company's


                                       10

<PAGE>

introduction of its own new enhanced products. The Company expects this pressure
to continue and intensify  throughout  fiscal 1998.  While many other technical,
service  and support  capabilities  affect a  customer's  buying  decision,  the
Company's  future  operating  results  will depend,  in part,  on its ability to
compete with these technologies.

The Company's future operating  results will depend to a considerable  extent on
its  ability to rapidly  and  continuously  develop,  introduce,  and deliver in
quantity  new  systems,   software,   and  service  products,  as  well  as  new
microprocessor  technologies,  that offer its customers enhanced  performance at
competitive prices. The development of new high - performance computer products,
such as the Company's development of the UltraSPARC microprocessor, 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. Once a hardware product is developed, the
Company must rapidly bring such products to volume manufacturing, a process that
requires accurate  forecasting of volumes,  mix of products and  configurations,
among  other  things in order to achieve  acceptable  yields  and costs.  Future
operating results will depend to a considerable  extent on the Company's ability
to  closely  manage  product  introductions  in  order to  minimize  unfavorable
patterns of customer  orders,  to reduce levels of older inventory and to ensure
that adequate supplies of new products can be delivered to meet customer demand.
The ability of the Company to match supply and demand is further  complicated by
the  Company's  need to adjust  prices to reflect  changing  competitive  market
conditions as well as the variability and timing of customer orders with respect
to the Company's older products.  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 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.

Generally,  the  computer  systems  sold by Sun,  such as the  UltraSPARC  based
products, are the result of hardware and software development,  such that delays
in the  software  development  can delay the  ability of the Company to ship new
hardware products. In addition, adoption of a new release of an operating system
may require  effort on the part of the customer and porting by software  vendors
providing  applications.  As a result, the timing of conversion to a new release
is  inherently  unpredictable.  Moreover,  delays by customers in adopting a new
release of an operating system can limit the  acceptability of hardware products
tied to that release.  Such delays could adversely  affect the future  operating
results of the Company.

Seasonality also affects the Company's  operating  results,  particularly in the
first 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
accordingly.  Additionally,  the Company plans to continue to evaluate and, when
appropriate,  make  acquisitions  of  complimentary  technologies,  products  or
businesses.  As part of this process,  the Company will continue to evaluate the


                                       11


<PAGE>

changing value of its assets,  and when  necessary,  make  adjustments  thereto.
While the Company cannot  predict what effect these various  factors may have on
its financial  results,  the  aggregate  effect of these and other factors could
result in significant  volatility in the Company's future  performance and stock
price.

LIQUIDITY AND CAPITAL RESOURCES

Total assets at September 28, 1997 decreased by approximately  $150 million from
June 30,  1997,  due  principally  to decreases in cash,  cash  equivalents  and
short-term  investments of $125 million and accounts receivable of $216 million,
offset by increases in inventory  of $29 million,  other  current  assets of $60
million,  property,  plant and  equipment-net of $79 million and other long-term
assets  of $24  million.  The  decrease  in  accounts  receivable  reflects  the
Company's  normal  seasonal  experience,  which is lower  revenue  in the  first
quarter of fiscal  1998 as compared  to the fourth  quarter of the prior  fiscal
year.  The increase in inventory  also  reflects the lower  revenue in the first
quarter of fiscal 1998 as compared to the fourth  quarter of fiscal 1997.  Other
current  assets  increased due to the timing of payments for insurance and other
taxes. The increase in property,  plant and equipment  reflects capital spending
for real estate  development as well as capital  additions to support  increased
headcount,  primarily  in  the  Company's  engineering,  service  and  marketing
organizations.  Other long-term assets increased primarily due to an increase in
spares inventory.

Total  current  liabilities  decreased  $272  million  from June 30,  1997,  due
principally  to  decreases in  short-term  borrowings  of $77 million,  accounts
payable of $40 million,  accrued liabilities of $138 million,  and other current
liabilities  of $17  million.  The  decrease in  short-term  borrowings  reflect
payments  related to debt of  subsidiaries.  The  decrease in  accounts  payable
reflects  the  timing  of  payments  for  inventory  and  other  items.  Accrued
liabilities  decreased due to the payment of performance based  compensation and
commissions,  offset by an increase in the employee stock participation  program
liability.  The other  current  liabilities  decrease  reflects  the decrease in
income taxes payable and deferred service revenues.

At September 28, 1997, the Company's  primary sources of liquidity  consisted of
cash,  cash  equivalents  and  short-term  investments  of  $987  million  and a
revolving  credit  facility  with  banks  aggregating  $500  million,  which was
available subject to compliance with certain covenants. On October 16, 1997, the
Company  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  $1,000,000,000.  On October 24, 1997, the  Registration
Statement became  effective,  so that the Company may now choose to offer,  from
time to time,  the  securities  and common stock  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.  The Company believes that the liquidity provided
by  existing  cash and  short-term  investment  balances  and the  offering  and
borrowing  arrangements described above will be sufficient to meet the Company's
capital  requirements  through fiscal 1998.  However,  the Company  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
the  Company  with   additional   flexibility  to  take  advantage  of  business
opportunities that may arise.


                                       12

<PAGE>





                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On October 7, 1997, the Company filed suit against Microsoft  Corporation in the
United States  District Court for the Northern  District of California  alleging
breach  of  contract,   trademark   infringement,   false  advertising,   unfair
competition,  interference  with  prospective  economic  advantage  and inducing
breach of contract.  The Company filed an amended complaint on October 14, 1997.
Microsoft  Corporation filed its answer,  affirmative defenses and counterclaims
to the amended complaint.  The counterclaims include breach of contract,  breach
of the  covenant of good faith and fair  dealing,  violation  of the  California
Business & Professions Code and declaratory judgment.  The Company believes that
the  counterclaims  are without  merit  and/or that the Company has  affirmative
defenses  and intends  vigorously  to defend  itself with respect  thereto.  The
Company  believes  that the  outcome  of this  matter  will not have a  material
adverse impact on Sun's financial position,  results of operations or cash flows
in any given fiscal year.

ITEM 5 - OTHER INFORMATION

SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER

         The following is a summary of all sales of the  Company's  Common Stock
by the Company's  executive officers and directors who are subject to Section 16
of the  Securities  Exchange Act of 1934, as amended,  during the fiscal quarter
ended September 28, 1997:

         OFFICER/                 DATE              PRICE          NUMBER OF
         DIRECTOR                                                  SHARES SOLD
         =======================================================================

         Kenneth M. Alvares      7/23/97           $45.75            10,000
                                 7/23/97           $46.125           10,000
                                 7/23/97           $46.5625          20,000
                                 7/24/97           $46.00            14,000
                                 7/25/97           $47.00            24,000
                                 8/7/97            $49.1146          24,000
                                 8/20/97           $50.7525           8,000
                                 8/20/97           $52.00             6,000
                                 8/20/97           $52.0625           2,000
                                 8/20/97           $52.5625           2,700
                                 8/20/97           $52.50             3,300

         Alan E. Baratz          8/5/97            $46.25            20,000
                                 8/6/97            $47.0625          12,000
                                 8/6/97            $47.0625          12,000

         Mel Friedman            8/6/97            $47.1875          20,000
                                 8/6/97            $47.1652          28,000

         Lawrence W. Hambly      8/6/97            $47.5313          10,000
                                 8/6/97            $48.25            10,000


                                       13


<PAGE>

                                 8/6/97            $48.50            10,000
                                 8/7/97            $49.00            10,000

         Masood Jabbar           7/25/97           $46.8019          26,000
                                 7/25/97           $46.8641           6,000
                                 7/25/97           $46.8641           3,000
                                 7/25/97           $46.9264           5,000
                                 8/19/97           $50.00             8,000
                                 8/19/97           $49.875            3,658
                                 8/19/97           $49.9375           5,000
                                 8/19/97           $50.00            23,342
                                 8/19/97           $49.875           12,000
                                 8/19/97           $49.875           32,000
                                 8/19/97           $50.00             1,158
                                 8/19/97           $50.00            16,000

         Michael E. Lehman       7/23/97           $46.750           20,000
                                 7/23/97           $46.00            10,000
                                 7/23/97           $46.125           10,000
                                 7/28/97           $47.0625           4,000
                                 8/1/97            $45.00             4,000
                                 8/4/97            $45.00            20,000
                                 8/4/97            $44.625           10,000
                                 8/5/97            $46.25             5,000
                                 8/5/97            $46.00             5,000
                                 8/6/97            $47.125            5,000
                                 8/7/97            $48.8125           3,000
                                 8/11/97           $48.4375           4,000
                                 8/11/97           $48.00             4,000

         Robert L. Long          8/5/97            $45.5625          10,000

         Scott G. McNealy        7/23/97           $46.3670         150,000
                                 7/30/97           $46.313          150,000
                                 8/6/97            $47.9420         150,000
                                 8/13/97           $47.190          150,000

         Michael H. Morris       7/23/97           $46.1562           8,000
                                 7/23/97           $46.1562           4,800
                                 8/5/97            $45.875            8,000
                                 8/5/97            $45.875            8,000
                                 8/11/97           $47.50             6,400

         Alton D. Page           8/6/97            $47.5625          10,000

         William J. Raduchel     7/23/97           $46.0538          35,000
                                 8/1/97            $45.00             8,000
                                 8/1/97            $45.625           10,000
                                 8/1/97            $44.5844          10,000
                                 8/4/97            $44.5625           5,000


                                       14


<PAGE>

                                 8/4/97            $45.00             5,000
                                 8/5/97            $46.25             6,000
                                 8/5/97            $46.25             5,000
                                 8/5/97            $46.00             5,000
                                 8/6/97            $47.0625          10,000
                                 8/12/97           $48.0312           5,000
                                 8/13/97           $46.6413           5,000

         George Reyes            7/24/97           $46.00             8,000
                                 7/24/97           $46.00             4,000
                                 7/24/97           $46.00               510
                                 8/5/97            $46.00             6,000
                                 8/19/97           $50.00             4,000

         Joseph P. Roebuck       8/25/97           $51.750           10,000
                                 8/25/97           $51.50            25,000
                                 8/25/97           $51.750           25,000

         Janpieter T. Scheerder  7/23/97           $45.9118          12,000
                                 7/23/97           $45.9118           8,000
                                 7/23/97           $45.9118          14,000
                                 8/1/97            $45.0937           5,200
                                 8/5/97            $46.1875           8,000
                                 8/11/97           $48.8067          48,000
                                 8/19/97           $49.6875           7,200

         John Shoemaker          7/23/97           $46.00625         12,000
                                 8/4/97            $44.9556          12,000
                                 8/7/97            $49.7525          12,800
                                 8/13/97           $46.565           13,000
                                 8/13/97           $46.5025           3,000
                                 8/20/96           $52.565           10,000
                                 8/20/97           $52.565            4,000

         Chester J. Silvestri    7/25/97           $46.75            10,000
                                 7/25/97           $46.9375           3,000
                                 7/25/97           $46.875            7,000
                                 8/19/97           $48.6875          20,000
                                 8/26/97           $52.00            20,000

         Dorothy A. Terrell      7/23/97           $46.6042          30,000
                                 7/23/97           $45.750           10,000
                                 7/23/97           $46.125           10,000
                                 7/25/97           $47.00            12,500
                                 8/7/97            $49.375           14,000
                                 8/19/97           $50.00            16,000
                                 8/19/97           $50.00            16,000
                                 8/20/97           $52.00             6,000
                                 8/20/97           $53.00             6,000

         Edward J. Zander        7/23/97           $46.75            20,000


                                       15



<PAGE>

                                 7/23/97           $46.00            10,000
                                 7/23/97           $46.125           10,000
                                 8/8/97            $49.625           20,000
                                 8/8/97            $49.50            20,000


                                       16


<PAGE>


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

  a) EXHIBITS
         10.93*           Integrity Arts, Inc. 1996 Stock Option Plan

         11.0             Statement re: Computation of Earnings Per Share

         27.0             Financial data for the period ended September 28, 1997

*  Incorporated  by  reference  to  Exhibit  4.1  filed  as an  exhibit  to  the
   Registrant's  Registration  Statement on Form S-8 (file no.  333-38163) filed
   with the Securities and Exchange Commission on October 17, 1997.


  b) REPORTS ON FORM 8-K

     No reports on Form 8-K were filed during the quarter  ended  September  28,
1997.


                                       17


<PAGE>

                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                     SUN MICROSYSTEMS, INC.



                                     BY

                                        /s/ Michael E. Lehman
                                        ---------------------
                                            Michael E. Lehman
                                            Vice President and Chief Financial
                                            Officer



                                        /s/ George Reyes
                                        --------------------
                                            George Reyes
                                            Vice President and Corporate 
                                            Controller, Chief Accounting Officer







Dated: November 11, 1997


                                       18

<PAGE>


                               EXHIBITS TO REPORT
                                  ON FORM 10-Q
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997


                                       19