<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                AMENDMENT NO. 1
                                       TO


                                  FORM 10-Q/A


                            ------------------------
(MARK ONE)
      [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 1998

                                       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)

<TABLE>
<CAPTION>
                        DELAWARE                                                 94-2805249
<S>                                                       <C>
            (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER IDENTIFICATION NO.)
             INCORPORATION OR ORGANIZATION)
</TABLE>

                   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 [X]  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.

<TABLE>
<CAPTION>
                    CLASS                             OUTSTANDING AT DECEMBER 27, 1998
<S>                                            <C>
      Common Stock -- $0.00067 par value                        385,264,651
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                     INDEX

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
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........................   10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings...................................   23
Item 4. Submission of Matters to a Vote of Security
  Holders...................................................   23
Item 5. Other Information...................................   24
Item 6. Exhibits and Reports on Form 8-K....................   24
Item 7A. Quantitative and Qualitative Disclosures about
  Market Risk...............................................   24
Signatures..................................................   25
</TABLE>

                                        2
<PAGE>   3

                        PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             SUN MICROSYSTEMS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 27,     JUNE 30,
                                                                  1998           1998
                                                              ------------    ----------
                                                                     (UNAUDITED)
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................  $   669,862     $  822,267
  Short-term investments....................................      902,929        476,185
  Accounts receivable, net..................................    2,108,237      1,845,765
  Inventories...............................................      363,664        346,446
  Deferred tax assets.......................................      373,541        371,841
  Other current assets......................................      327,461        285,021
                                                              -----------     ----------
          Total current assets..............................    4,745,694      4,147,525
Property, plant and equipment, at cost......................    2,593,985      2,257,228
Accumulated depreciation and amortization...................   (1,141,377)      (956,616)
                                                              -----------     ----------
                                                                1,452,608      1,300,612
Other assets, net...........................................      363,218        262,925
                                                              -----------     ----------
                                                              $ 6,561,520     $5,711,062
                                                              ===========     ==========

                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings.....................................  $    12,351     $    7,169
  Accounts payable..........................................      611,412        495,603
  Accrued liabilities.......................................    1,230,718      1,166,491
  Income taxes payable......................................      205,340        188,641
  Other current liabilities.................................      288,169        264,967
                                                              -----------     ----------
          Total current liabilities.........................    2,347,990      2,122,871
Deferred income taxes and other obligations.................      112,527         74,563
          Total stockholders' equity........................    4,101,003      3,513,628
                                                              -----------     ----------
                                                              $ 6,561,520     $5,711,062
                                                              ===========     ==========
</TABLE>

                            See accompanying notes.

                                        3
<PAGE>   4

                             SUN MICROSYSTEMS, INC.

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED               SIX MONTHS ENDED
                                          ----------------------------    ----------------------------
                                          DECEMBER 27,    DECEMBER 28,    DECEMBER 27,    DECEMBER 28,
                                              1998            1997            1998            1997
                                          ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>
Net revenues:
  Products..............................   $2,384,740      $2,161,992      $4,540,858      $4,009,880
  Services..............................      399,700         288,251         734,766         538,967
                                           ----------      ----------      ----------      ----------
          Total net revenues............    2,784,440       2,450,243       5,275,624       4,548,847
                                           ----------      ----------      ----------      ----------
Cost and expenses:
  Cost of sales -- products.............    1,121,500         997,301       2,109,737       1,858,628
  Cost of sales -- services.............      225,710         174,329         453,810         340,436
  Research and development..............      303,482         259,228         586,762         481,846
  Selling, general and administrative...      747,603         696,450       1,459,191       1,311,943
  Purchased in-process research and
     development........................       12,000         110,100          92,000         162,284
                                           ----------      ----------      ----------      ----------
          Total costs and expenses......    2,410,295       2,237,408       4,701,500       4,155,137
Operating income........................      374,145         212,835         574,124         393,710
Interest income, net....................       20,306          10,197          35,661          20,768
                                           ----------      ----------      ----------      ----------
Income before income taxes..............      394,451         223,032         609,785         414,478
Provision for income taxes..............      133,364          73,600         234,824         156,613
                                           ----------      ----------      ----------      ----------
Net income..............................   $  261,087      $  149,432      $  374,961      $  257,865
                                           ==========      ==========      ==========      ==========
Net income per common share -- basic....   $     0.68      $     0.40      $     0.99      $     0.69
                                           ==========      ==========      ==========      ==========
Net income per common share --diluted...   $     0.64      $     0.38      $     0.93      $     0.65
                                           ==========      ==========      ==========      ==========
Shares used in the calculation of net
  income per share -- basic.............      382,547         373,875         379,883         372,968
                                           ==========      ==========      ==========      ==========
Shares used in the calculation of net
  income per share -- diluted...........      405,288         393,231         401,445         394,165
                                           ==========      ==========      ==========      ==========
</TABLE>

                            See accompanying notes.

                                        4
<PAGE>   5

                             SUN MICROSYSTEMS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   SIX MONTHS ENDED
                                                              ---------------------------
                                                              DECEMBER 27,   DECEMBER 28,
                                                                  1998           1997
                                                              ------------   ------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Net income................................................   $ 374,961      $ 257,865
  Adjustments to reconcile net income to operating cash
     flows:
     Depreciation and amortization..........................     313,370        183,472
     Tax benefit of options exercised.......................      96,740         74,466
     Purchased in-process research and development..........      92,000        162,284
     Net (increase) decrease in accounts receivable.........    (258,651)        16,004
     Net increase in inventories............................     (17,218)       (15,765)
     Net increase in accounts payable.......................     114,749         14,414
     Net increase in other current and non-current assets...     (87,687)       (97,594)
     Net increase in other current and non-current
      liabilities...........................................     143,529         19,301
                                                               ---------      ---------
     Net cash provided from operating activities............     771,793        614,447
                                                               ---------      ---------
Cash flows from investing activities:
  Acquisition of property, plant and equipment..............    (360,322)      (410,453)
  Acquisition of spare parts and other assets...............     (68,481)       (49,080)
  Payments for acquisitions, net of cash acquired...........     (31,269)      (227,655)
  Acquisition of short-term investments.....................    (935,266)      (305,738)
  Sale of short-term investments............................     235,617        224,309
  Maturities of short-term investments......................     252,268        214,122
                                                               ---------      ---------
Net cash used by investing activities.......................    (907,453)      (554,495)
                                                               ---------      ---------
Cash flows from financing activities:
  Issuance of common stock, net.............................      92,228         37,189
  Acquisition of treasury stock.............................    (164,286)      (140,537)
  Proceeds from employee stock purchase plans...............      58,529         50,649
  Net reduction of short-term borrowings and other
     obligations............................................      (3,216)       (94,155)
                                                               ---------      ---------
Net cash used by financing activities.......................     (16,745)      (146,854)
                                                               ---------      ---------
Net decrease in cash and cash equivalents...................    (152,405)       (86,902)
                                                               ---------      ---------
Cash and cash equivalents, beginning of period..............     822,267        660,170
                                                               ---------      ---------
Cash and cash equivalents, end of period....................   $ 669,862      $ 573,268
                                                               =========      =========
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
  Interest..................................................   $     745      $     388
  Income taxes..............................................   $  58,448      $  55,503
Supplemental schedule of non-cash investing activities:
  Stock issued in conjunction with an acquisition...........   $ 142,028             --
  Fair value of assets acquired.............................   $ 198,629      $ 284,294
  Cash paid for assets......................................   $  35,684      $ 233,111
  Liabilities assumed.......................................   $  20,737      $  51,183
</TABLE>

                            See accompanying notes.

                                        5
<PAGE>   6

                             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 interim 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 1998 Annual Report to Stockholders which is incorporated by
reference in the Company's 1998 Form 10-K .

INVENTORIES (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       DECEMBER 27,    JUNE 30,
                                                           1998          1998
                                                       ------------    --------
<S>                                                    <C>             <C>
  Raw materials......................................    $127,115      $ 92,197
  Work in process....................................      40,577        58,765
  Finished goods.....................................     195,972       195,484
                                                         --------      --------
                                                         $363,664      $346,446
                                                         ========      ========
</TABLE>

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.

RECENT PRONOUNCEMENTS

     The Company adopted SOP 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" effective July 1, 1998. The adoption of
SOP 98-1 did not have a material effect on the Company's consolidated financial
position or operating results.

     In June 1998, Financial Accounting Standard No. 133 ("FAS 133"),
"Accounting for Derivative Instruments and Hedging Activities" was issued and is
effective for all fiscal years beginning after June 15, 1999. FAS 133 requires
the Company to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. It further provides criteria for
derivative instruments to be designated as fair value, cash flow and foreign
currency hedges and establishes respective accounting standards for reporting
changes in the fair value of the derivative instruments. Upon adoption, the
Company will be required to adjust hedging instruments to fair value in the
balance sheet and recognize the offsetting gains or losses as adjustments to be
reported in net income or other comprehensive income, as appropriate. The
Company is evaluating its expected adoption date and currently expects to comply
with the requirements of FAS 133 in fiscal year 2000. The Company does not
expect the adoption will be material to the Company's financial position or
results of operations.

                                        6
<PAGE>   7
                             SUN MICROSYSTEMS, INC.

                   NOTES TO CONDENSED CONSOLIDATED FINANCIAL
                       STATEMENTS (UNAUDITED) (CONTINUED)

COMPREHENSIVE NET INCOME

     As of July 1, 1998, the Company adopted Financial Accounting Standards No.
130 ("FAS 130") , "Reporting Comprehensive Income." FAS 130 establishes new
rules for the reporting and display of comprehensive net income and its
components, however, it has no impact on the Company's net income or
stockholders' equity. FAS 130 requires foreign currency translation adjustments
and changes in fair value for available for sale securities, which prior to
adoption were reported in stockholders' equity, to be included in comprehensive
income.

     The components of comprehensive net income, net of tax, are as follows:

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED              SIX MONTHS ENDED
                                      ---------------------------    ---------------------------
                                      DECEMBER 27,   DECEMBER 28,    DECEMBER 27,   DECEMBER 28,
                                          1998           1997            1998           1997
                                      ------------   ------------    ------------   ------------
<S>                                   <C>            <C>             <C>            <C>
Net income..........................    $261,087       $149,432        $374,961       $257,865
Unrealized gain (loss) on
  securities........................      (6,513)         9,406         (20,637)         9,592
Change in cumulative translation
  adjustment........................         242          7,515           2,201         (1,622)
                                        --------       --------        --------       --------
Comprehensive net income............    $254,816       $166,353        $356,525       $265,835
                                        ========       ========        ========       ========
</TABLE>

ACQUISITIONS

     On August 28, 1998, the Company acquired all of the outstanding capital
stock of NetDynamics, Inc. ("NetDynamics") by means of a merger transaction
pursuant to which all the shares of NetDynamics capital stock were converted
into the right to receive shares of Sun common stock based upon an agreed-upon
exchange ratio which was calculated using an agreed-upon average market price
for Sun common stock. The Company issued 2,746,785 shares of Sun common stock
(with a fair market value of $48.26875 per share) as consideration for the
acquisition. Additionally Sun issued approximately 568,000 stock options in
exchange for NetDynamics stock options previously outstanding, including
approximately 172,000 Sun options in exchange for vested NetDynamics stock
options, with terms similar to Sun stock options. The fair value of the Sun
stock options exchanged for rights to vested NetDynamics stock options at the
time of the acquisition was included as part of the purchase price. The
transaction was accounted for as a purchase and the excess purchase price over
the estimated fair value of net tangible assets has been allocated to various
intangible assets, primarily consisting of developed technology ($20 million),
goodwill ($36.2 million), customer base ($10 million) and assembled workforce
($2 million). In addition to the intangible assets acquired, the Company
recorded an $80 million charge, representing the write-off of in-process
research and development ("IPRD").

     On September 28, 1998 the Company acquired all of the outstanding capital
stock of i-Planet, Inc. ("i-Planet") by means of a merger transaction pursuant
to which all the shares of i-Planet capital stock were converted into the right
to receive cash for total consideration of $30 million. The transaction was
accounted for as a purchase and the excess purchase price over the estimated
fair value of net tangible assets has been allocated to various intangible
assets, primarily consisting of developed technology ($3.3 million) and goodwill
type assets ($18.3 million). In addition to the intangible assets acquired, the
Company recorded an $8.4 million charge, representing the write-off of IPRD.

     On October 16, 1998, the Company acquired all of the outstanding capital
stock of Beduin Communications Incorporated ("Beduin") by means of a share
purchase transaction pursuant to which all the shares of Beduin capital stock
were converted into the right to receive cash for total consideration of $8.4
million. The transaction was accounted for as a purchase and the excess purchase
price over the estimated fair value of net tangible assets has been allocated to
various intangible assets, primarily consisting of developed technology

                                        7
<PAGE>   8
                             SUN MICROSYSTEMS, INC.

                   NOTES TO CONDENSED CONSOLIDATED FINANCIAL
                       STATEMENTS (UNAUDITED) (CONTINUED)


($3.1 million) and goodwill type assets ($1.4 million). In addition to the
intangible assets acquired, the Company recorded a $3.6 million charge,
representing the write-off of IPRD.

     For financial reporting purposes, the Company is required for each
acquisition to determine the fair value of all identified intangible assets
acquired and expense the fair value associated with IPRD for which there is no
alternative future use. The allocation of $80 million, $8.4 million, and $3.6
million of the purchase price to IPRD in the case of the NetDynamics, i-Planet
and Beduin acquisitions, respectively, represents the estimated fair value based
on risk adjusted cash flows related to each incomplete project. The Company
believes that such fair values do not exceed the amount a third party would pay
for each such in-process technology. At the date of each of the acquisitions,
the projects associated with the IPRD efforts had not yet reached technological
feasibility and the in-progress technology had no alternative future use.
Accordingly, these costs were expensed.

     In making its purchase price allocations for the NetDynamics, i-Planet, and
Beduin acquisitions, the Company considered present value calculations of
income, an analysis of project accomplishments and completion costs, an
assessment of overall contribution, as well as project risks. The values
assigned to IPRD related to each acquisition were determined by estimating the
costs to develop the purchased in-process technology into commercially viable
products. Projected future net cash flows attributable to the in-process
technologies, excluding the cash flows related to the portion of each project
that was incomplete at the acquisition date, were discounted to their present
value using a discount rate based on the Company's estimated weighted average
cost of capital plus a risk premium to account for the inherent uncertainty
surrounding the successful completion of each project and the associated
estimated cash flows.

     The values assigned to developed technologies related to each acquisition
were based upon future discounted cash flows related to the existing products'
projected income stream. The values of the customer bases were determined based
upon the value of existing relationships and the expected revenue stream. The
value of the assembled workforces were based upon the cost to replace that
workforce. Intangible assets, including goodwill, are being amortized over their
estimated useful lives, generally two to five years.

     The results of operations of NetDynamics, i-Planet, and Beduin from the
date of acquisition through December 27, 1998 are included in the Company's
consolidated statement of income and were not material to the Company.


SUN MICROSYSTEMS, INC. AND AMERICA ONLINE, INC. STRATEGIC DEVELOPMENT AND
MARKETING AGREEMENT

     On November 23, 1998, Sun and America Online, Inc. ("AOL") entered into a
Strategic Alliance consisting of several agreements between the parties,
including the Strategic Development and Marketing Agreement ("SDMA"). A copy of
the SDMA has been filed as exhibit 10.93 to this Form 10-Q and is incorporated
herein by reference. Under terms of the SDMA, AOL and Sun committed to
collaboratively develop, market and sell client and server software and
collaboratively develop an AOL specific Java environment that will enable AOL
services to be accessed through a variety of hardware devices. The SDMA provides
that over a three year period, AOL will develop and market, together with Sun,
client software and network application and server software based in part on the
Netscape Communications, Inc. ("Netscape") code base, on Sun code and
technology, and on certain AOL services features to business enterprises. In
addition, AOL and Sun have agreed to coordinate their sales efforts and share
revenues with respect to designated collaboratively developed client software
and network application and server software and associated services.

     Under the terms of the SDMA, Sun has committed that the total revenue
earned by AOL from certain existing Netscape contracts, the sale or license of
certain AOL and Netscape software and services, the sale or license of certain
collaboratively developed software products and services and the license to Sun
to distribute

                                        8
<PAGE>   9
                             SUN MICROSYSTEMS, INC.

                   NOTES TO CONDENSED CONSOLIDATED FINANCIAL
                       STATEMENTS (UNAUDITED) (CONTINUED)

commercially existing Netscape software will not be less than $312 million, $330
million and $333 million in the first, second and third years of the SDMA's
three year term, respectively; for these purposes a portion of the total revenue
is determined as a percentage of the gross margin or net of sales commissions
earned by Sun. In addition, Sun will pay to AOL approximately $275 million in
licensing and other fees in connection with licenses granted to Sun by AOL. In a
separate transaction, AOL signed a definitive agreement to acquire Netscape (the
"Merger"). The SDMA provides that in the event the Merger is not consummated by
June 30, 1999, AOL and Sun will negotiate in good faith for a period of 30 days
thereafter in an effort to agree to alternative terms, and either party may
terminate the SDMA if the parties fail to agree on alternative terms during that
period.

SUBSEQUENT EVENTS

     On January 21, 1999 the Company announced a two-for-one stock split (to be
effected in the form of a stock dividend) to stockholders of record as of the
close of business on March 18, 1999. This dividend is subject to stockholder
approval of an increase in the number of authorized shares of the Company's
Common Stock to 1.8 billion shares which will be sought at the Company's Special
Meeting of Stockholders on March 17, 1999.

     On January 22, 1999, the Company acquired all of the outstanding capital
stock of Maxstrat Corporation ("Maxstrat"), by means of a merger transaction
pursuant to which all of the shares of Maxstrat capital stock were converted
into the right to receive cash. The transaction will be accounted for as a
purchase, and the purchase price will be allocated to tangible and intangible
assets and IPRD.

                                        9
<PAGE>   10

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 total net revenues:

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED               SIX MONTHS ENDED
                                  ----------------------------    ----------------------------
                                  DECEMBER 27,    DECEMBER 28,    DECEMBER 27,    DECEMBER 28,
                                      1998            1997            1998            1997
                                  ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>
Net revenues:
  Products......................      85.6%           86.5%           86.1%           88.2%
  Services......................      14.4            13.5            13.9            11.8
                                     -----           -----           -----           -----
Total net revenues..............     100.0           100.0           100.0           100.0
                                     -----           -----           -----           -----
Cost of sales:
  Products......................      40.3            40.7            40.0            40.8
  Services......................       8.1             7.1             8.6             7.5
                                     -----           -----           -----           -----
Total cost of sales.............      48.4            47.8            48.6            48.3
                                     -----           -----           -----           -----
          Gross margin..........      51.6            52.2            51.4            51.7
Research and development........      10.9            10.6            11.1            10.6
Selling, general and
  administrative................      26.8            28.4            27.7           28.85
Purchased in-process research
  and development...............       0.4             4.5             1.7             3.6
                                     -----           -----           -----           -----
Operating income................      13.4             8.7            10.9             8.7
Interest income, net............       0.8             0.4             0.7             0.4
                                     -----           -----           -----           -----
Income before income taxes......      14.2             9.1            11.6             9.1
Provision for income taxes......       4.8             3.0             4.5             3.4
                                     -----           -----           -----           -----
          Net income............       9.4%            6.1%            7.1%            5.7%
                                     =====           =====           =====           =====
</TABLE>

     The following sections contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties, and the cautionary
statements set forth below, specifically those contained in "Future Operating
Results" identify important factors that could cause actual results over the
next few quarters to differ materially from those predicted in any such
forward-looking statements. Such factors include, but are not limited to,
adverse changes in general economic conditions, including adverse changes in the
specific markets for the Company's products, adverse business conditions,
decreased or lack of growth in the computing industry, adverse changes in
customer order patterns, increased competition, lack of acceptance of new
products, pricing pressures, lack of success in technological advancements,
risks associated with foreign operations (including the downturn of economic
trends and unfavorable currency movements in the Asia Pacific and Latin American
marketplace), risks associated with the Company's efforts to comply with Year
2000 requirements, risks associated with the Company's new business practices,
processes and information systems, and other factors, including those listed
below. Other facts that may affect such results and financial condition are set
forth in the Company's 1998 Annual Report to Stockholders which is incorporated
by reference in the Company's Form 10-K.

RESULTS OF OPERATIONS

NET REVENUES

     Net revenues were $2,784.4 million for the second quarter of fiscal 1999
and $5,275.6 million for the first six months of fiscal 1999, representing
increases of 13.6% and 16.0%, respectively, over the corresponding periods of
fiscal 1998.

     Sun's products net revenues were $2,384.7 million for the second quarter of
fiscal 1999, an increase of $222.7 million or 10.3% over the second quarter of
fiscal 1998. Net product revenues were $4,540.9 million for the six months ended
December 27, 1998, an increase of $531.0 million or 13.2% over the corresponding
period of fiscal 1998. More than 50% of the growth in products revenues for the
quarter ended December 27,

                                       10
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1998 resulted from strong demand for low-end desktop products and workgroup
servers, and to a lesser extent from increased revenues generated by richly
configured enterprise servers. More than 50% of the growth in products revenues
for the six month period ended December 27, 1998 resulted from strong demand for
low-end desktop products and workgroup servers and to a lesser extent, the
Company's storage products. The growth in product revenues in both the quarter
and year to date periods was partially offset by a decline in high-end desktop
product volumes as the result of a shift in customer purchasing patterns towards
low-end desktop products and workgroup servers.

     Sun's services net revenues were $399.7 million for the second quarter of
fiscal 1999, an increase of $111.4 million or 38.6% over the second quarter of
fiscal 1998. Net revenues from services were $734.8 million for the six months
ended December 27, 1998, an increase of $195.8 million or 36.3% over the
corresponding period of fiscal 1998. The increases in services revenues are
primarily the result of a larger installed product base due to increased product
unit sales, as well as increased revenues associated with Sun's professional and
educational services.

     Domestic net revenues increased by 10.1% and 14.9 % in the second quarter
and first six months of fiscal 1999, respectively. International net revenues
(including United States exports) grew 17.2% and 17.1% in the second quarter and
first six months of fiscal 1999, respectively, compared with the corresponding
periods of fiscal 1998. In US dollars, European net revenues increased 22.7% and
28.7%, Rest of World (ROW) net revenues increased 7.1% and 10.8%, and Japanese
net revenues increased 13.8% and decreased 3.3%, in the second quarter and first
six months of fiscal 1999, respectively, when compared with the corresponding
periods of fiscal 1998. The increases in Europe and the ROW are due to continued
market acceptance of Sun's network computing products and services primarily in
the United Kingdom and Germany. The Company attributes the increase in Japanese
revenues in the second quarter to increased demand within the region for Sun's
products, rather than a sign of strengthening in the Asian economies. Sun
remains cautious with regard to the Japanese market and does not expect the
current Japanese Macroeconomic trends to change significantly or materially in
the near term. The foregoing is a forward-looking statement that is subject to
risks and uncertainties, and actual results may differ materially from those set
forth in such statement as the result of a number of factors. In particular, if
the economic trends in Japan significantly worsen in a quarter or decline over
an extended period of time, the Company's results from operations and cash flows
would be adversely affected.

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

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

                                       11
<PAGE>   12

GROSS MARGIN

     Total gross margin was 51.6% for the second quarter of fiscal 1999 and
51.4% for the first six months of fiscal 1999, compared with 52.2% and 51.7%,
respectively, for the corresponding periods of fiscal 1998.

     Products gross margin was 53.0% in the second quarter of fiscal 1999 and
53.5% for the first six months of fiscal 1999, compared with 53.9% and 53.6%,
respectively, for the corresponding periods of fiscal 1998. The decrease in the
products gross margin for the second quarter of fiscal 1999 reflects the effects
of increased volumes of lower margin low-end desktop products, partially offset
by higher margin servers and reduced component costs across product lines. There
could be a further impact upon products gross profit margins as the result of
any continued shift in customer purchasing patterns towards low-end desktop
products and workgroup servers. The foregoing is a forward-looking statement
that is subject to risks and uncertainties, and actual results may differ
materially from those set forth in such statement as the result of a number of
factors. Services gross margin was 43.5% for the second quarter of fiscal 1999
and 38.2% for the first six months of fiscal 1999, compared with 39.5% and
36.8%, respectively, for the corresponding periods of fiscal 1998. The increases
in services gross margin reflect increased market penetration in Enterprise
datacenter accounts, increased enrollment in datacenter training courses and
other offerings, and continued growth in professional services offerings. These
increases have been partially offset by increased investment by the Company in
its services business.

     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 increased to $303.5 million in the
second quarter of fiscal 1999, compared with $259.2 million for the second
quarter of fiscal 1998. R&D expenses were $586.8 million for the first six
months of fiscal 1999, compared with $481.8 million for the corresponding period
of fiscal 1998. As a percentage of total net revenues, R&D expenses increased to
10.9% and 11.1% for the second quarter and first six months of fiscal 1999,
respectively, compared with 10.6% in each of the corresponding periods of fiscal
1998. Both the dollar and percentage increase in R&D expenses in the second
quarter and first half of fiscal 1999 over the corresponding periods in fiscal
1998 primarily reflect increased expenditures focused on the development of
hardware and software products which utilize the Java(TM) platform and new
server and storage products. The remaining increase in R&D expenses is due to
further development of products acquired through acquisitions and increased
compensation due primarily to higher levels of R&D staffing. The increase in R&D
expenses reflects the Company's belief that to maintain its competitive position
in a market characterized by rapid rates of technological advancement, the
Company must continue to invest significant resources in new systems, software
products and microprocessor development, as well as enhancements to existing
products. The Company continues to expect the level of R&D expenses to be in the
range of 10 to 11% of revenue for fiscal 1999.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general and administrative (SG&A) expenses increased to $747.6
million in the second quarter of fiscal 1999, compared with $696.5 million for
the second quarter of fiscal 1998. SG&A expenses were $1,459.2 million for the
first six months of fiscal 1999, compared with $1,311.9 million for the
corresponding period of fiscal 1998. As a percentage of total net revenues, SG&A
expenses decreased to 26.8% and 27.7% in the second quarter and first six months
of fiscal 1999, respectively, from 28.4% and 28.8%, respectively, in the
corresponding periods of fiscal 1998. Overall SG&A spending increased by
approximately $51.1 million or 7.3% in the second quarter of fiscal 1999 in
comparison with the same period of fiscal 1998. For the six month period ended
December 27, 1998, overall SG&A spending increased by approximately $147.2
million or 11.2% in comparison to the corresponding period of fiscal 1998. The
dollar increases in fiscal 1999 are primarily

                                       12
<PAGE>   13

attributable to increased compensation resulting from higher levels of
headcount, principally in the sales organization, annual salary adjustments and
to a lesser extent marketing costs related to promotional programs. The dollar
increase also reflects investments aimed at improving Sun's own business
processes. The Company expects to continue to hire personnel, although at a
lower rate than in fiscal 1998 and early 1999, to further expand its demand
creation programs and support organizations.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT

     The following paragraphs contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, particularly
statements regarding the Company's expectations, including percentage of
completion, expected product release dates, dates for which the Company expects
to begin generating benefits from projects, expected product capabilities and
product life cycles, costs and efforts to complete projects, growth rates,
projected revenue and expense information used by the Company to calculate
discounted cash flows, and discount rates. These forward-looking statements
involve risks and uncertainties, and the cautionary statements including those
set forth below and in "Future Operating Results" identify important factors
that could cause actual results to differ materially from those predicted in any
such forward-looking statement. Such factors include but are not limited to,
delays in the development of in-process technologies or the release of products
into the market, the complexity of the technology, the Company's ability to
successfully manage product introductions, lack of customer acceptance,
competition and changes in technological trends, and market or general economic
conditions. In addition, there can be no assurance that any of the new products
discussed below will be completed, that such products will meet either
technological or commercial success or that the Company will receive any
economic benefit from such products as a result of delays in the development of
the technology, the complexity of the technology, changes in customer needs, or
for other reasons, including those described above.

     In response to recent actions and comments from the Securities and Exchange
Commission regarding its views on the application of valuation methodologies to
purchased IPRD, the Company has expanded its disclosures related to acquisitions
involving IPRD charges for each of the Acquired Companies. The Company believes
that it is in compliance with all of the rules and related guidance as they
currently exist.

     Purchased IPRD of $12 million and $92 million in the second quarter and
first six months of fiscal 1999, respectively, represent the write-off of
purchased IPRD associated with the Company's acquisitions of i-Planet and Beduin
in the second quarter of fiscal 1999 and NetDynamics in the first quarter of
fiscal 1999 (collectively the "Acquired Companies"). A description of the
acquired IPRD, including the assumptions made by the Company in its valuation
analysis, as well as the status of the efforts to date related to the acquired
IPRD for each of the Acquired Companies, has been set forth below. Also see the
Acquisitions Footnote to the financial statements.

     Purchased IPRD of $110.1 million and $162.3 million in the second quarter
and first six months of fiscal 1998, respectively, represent the write-off of
purchased IPRD associated with the Company's acquisitions of Chorus Systems
S.A., and the storage products business of Encore Computer Corporation in the
second quarter of fiscal 1998 and Diba, Inc. and Integrity Arts, Inc. in the
first quarter of fiscal 1998.


     With respect to the Company's acquisitions completed in the three years
ended June 30, 1998, there have been no material changes to the projections the
Company used in performing its valuations. Management expects to continue the
development of each project and believes that there is a reasonable chance of
successfully completing such development efforts. However, there can be no
assurance that the projected results will be achieved. Although there have been
delays in the development efforts related to certain IPRD technologies acquired
prior to fiscal 1999, the impact upon the Company's consolidated results of
operations or financial position with respect to the success or lack thereof
related to any such acquisition, individually or in aggregate, is not considered
material.


  NetDynamics, Inc.

     A description of the acquired IPRD of NetDynamics, including the estimates
made by the Company in its valuation analyses are set forth below.

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<PAGE>   14

IPRD OVERVIEW -- NETDYNAMICS

     At the acquisition date, NetDynamics was conducting development,
engineering, and testing activities associated with the completion of a new
enterprise application platform product scheduled to be released in mid calendar
1999. It is anticipated that this new product offering ("NetDynamics New Product
Offering") will employ a new server-side component model, based on the
Enterprise JavaBeans (TM) ("EJB") architecture, which will allow business logic
to reside in the middle tier of the enterprise computing model independent of
the client presentation layer and independent of legacy and database systems.
This architecture is significantly different than the business logic
architecture in NetDynamics' existing product offering which is tightly
integrated with the presentation interface. The EJB architecture will allow for
the development of more robust and scaleable applications with improved
reusability, better connectivity to a wide variety of data sources, and a
more-industry standard interface through the use of Java enterprise application
programming interfaces incorporating Java technology. Other new features include
significant security enhancements and performance improvements and the addition
of new platform adaptor components for legacy systems integration.

     At the acquisition date, NetDynamics was approximately 60% complete with
the development of the NetDynamics New Product Offering and substantial progress
had been made in the areas of specifications, design, and implementation.
Remaining efforts necessary to complete the NetDynamics New Product Offering
relate primarily to coding, testing, and addressing additional implementation
issues. The Company anticipates that the NetDynamics New Product Offering will
be complete by the end of the Company's fiscal year ending June 30, 1999, after
which the Company expects to begin generating economic benefits from the value
of the completed development associated with the IPRD.

VALUATION ANALYSIS -- NETDYNAMICS

     The value of the IPRD technology was computed using a discounted cash flow
analysis on the anticipated income stream of the related product sales. The
discounted cash flow analysis was based upon management's forecast of future
revenues, cost of revenues and operating expenses related to the product and
technology acquired from NetDynamics which are intended to be utilized in the
Company's future enterprise application platform products. Total projected
revenues for NetDynamics are expected to increase at a compound growth rate of
approximately 30% from fiscal 1999 through 2008. Revenues are expected to peak
in fiscal 2000 and decline thereafter, as new product technologies are expected
to be introduced by the Company. These projections are based on management's
estimates of market size and growth, expected trends in technology, and the
expected timing of new product introductions.


     Management's assumptions with respect to operating expenses used in the
valuation analysis include: (i) cost of goods sold, (ii) SG&A expenses, and
(iii) R&D expenses. Selected operating expense assumptions were based on an
evaluation of NetDynamics' overall business model, including both historic and
expected direct expense levels (as appropriate), and an assessment of general
industry metrics. The Company projected that cost of revenues (expressed as a
percentage of revenues) for the IPRD would decrease over time from approximately
26% in fiscal 1999 to 15% in fiscal 2005. Management estimated SG&A (expressed
as a percentage of revenue) for the IPRD, to average 34% over the projection
period. Management expects that the total R&D costs to complete the NetDynamics
New Product Offering will be approximately $5.7 million. Management estimated
maintenance R&D related to the IPRD to be approximately 1% of revenues over the
projection period.


     The discount rate selected for the IPRD was 20%. In the selection of the
appropriate discount rate, consideration was given to Sun's weighted average
cost of capital ("WACC"), as well as other factors, including the useful life of
the technology, profitability levels of the technology, the uncertainty of
technology advances that are known at this time, and the stage of completion of
the technology. The discount rate utilized for the IPRD was determined to be
greater than Sun's WACC due to the fact that the technology had not yet reached
technological feasibility as of the date of the valuation.

     The value of the IPRD reflects the relative value and contribution of the
acquired research and development. In doing so, consideration was given to the
R&D's stage of completion, the complexity of the

                                       14
<PAGE>   15

work completed to date, the difficulty completing the remaining development,
costs already incurred, and the projected cost to complete the project.

COMPARISON TO ACTUAL RESULTS -- NETDYNAMICS

     At December 27, 1998, significant progress had been made on the development
related to the NetDynamics New Product Offering that was underway as of the
acquisition date (August 28, 1998). In general, the Company believes that
research and development efforts associated with the NetDynamics New Product
Offering are consistent with management's plans at the time the NetDynamics
acquisition occurred. The Company is continuing to invest in the development of
new technologies that were underway at the consummation of the NetDynamics
acquisition. Approximately $2.4 million of the planned total cost to complete of
$5.7 million had been incurred as of December 27, 1998. Through this date, no
significant adjustments have been made in the economic assumptions or
expectations which underlie the Company's acquisition decision and related
purchase accounting. The Company is continuing its development efforts related
to the IPRD technology acquired. These development efforts are advancing at a
rate consistent with management's expectations.

     Given the uncertainties of the development process, no assurance can be
given that deviations from these estimates will not occur. Management expects to
continue the development of each project and believes that there is a reasonable
chance of successfully completing such development. However, as there is risk
associated with the completion of the in-process projects due to the remaining
efforts to achieve technological feasibility, rapidly changing customer needs,
complexity of technology and growing competitive pressures, there can be no
assurance that any project will meet with either technological or commercial
success. Failure to successfully develop and commercialize these in-process
projects would result in the loss of the expected economic return inherent in
the fair value allocation. Additionally, the value of other intangible assets
acquired may become impaired.

  IPRD Overview i-Planet, Inc.

     At the acquisition date, i-Planet was conducting development, engineering
and testing activities associated with the completion of a new Java
technology-based remote Internet access product scheduled to be released in
early calendar year 1999. It is anticipated that this new product offering
("i-Planet New Product Offering") will be designed to allow cost-effective,
secure, and ubiquitous internet access for applications such as remote access to
corporate intranets, supply chain management and commerce applications.

     At the acquisition date, i-Planet was performing development efforts in the
areas of specifications, design, and implementation. Remaining efforts necessary
to complete the i-Planet New Product Offering relate primarily to coding,
testing, and addressing additional implementation issues. The Company
anticipates that the i-Planet New Product Offering will be complete in early
calendar 1999, after which the Company expects to begin generating economic
benefits from the value of the completed development associated with the IPRD.
Expenditures to complete the i-Planet New Product Offering are expected to total
approximately $6 million in fiscal 1999.

  IPRD Overview Beduin Communications Incorporated

     At the acquisition date, Beduin was conducting development, engineering,
and testing activities associated with the completion of a suite of products
("Beduin New Product Offerings") which included: Lifestyle Manager Personal
Information Manager ("PIM") (a next generation PIM targeted at smart devices
incorporating Java technology), and "email client" (a next generation email
client specialized to take advantage of the benefits of these smart devices).
The Lifestyle PIM and the email client were scheduled to be released in the
second quarter of calendar year 1999. The Company anticipates that these Beduin
New Product Offerings will provide the core functionality for smart devices
incorporating Java technology and enable more efficient communication,
regardless of time, location or type of device. These Beduin New Product
Offerings are designed to integrate and synchronize communications and data
processing systems, enabling communications across time and space.

                                       15
<PAGE>   16

     At the acquisition date, Beduin was performing development efforts and
substantial progress had been made in the areas of specifications, design, and
implementation. Remaining efforts necessary to complete the Beduin New Product
Offerings relate primarily to coding, testing, and addressing additional
implementation issues. The Company anticipates that the Beduin New Product
Offerings will be complete during the fourth quarter of the Company's fiscal
year ending June 30, 1999, after which the Company expects to begin generating
economic benefits from the value of the completed development associated with
the IPRD. Expenditures to complete the Beduin New Product Offerings are expected
to total approximately $1 million in fiscal 1999.

  Valuations of IPRD -- i-Planet and Beduin

     For financial reporting purposes, the Company is required to determine the
fair value of all identified intangible assets and expense the fair value
associated with IPRD for which there is no alternative future use for each of
its acquisitions. The allocation of $8.4 million, and $3.6 million of the
purchase price to IPRD in the case of the i-Planet and Beduin acquisitions,
respectively, represents the estimated fair values based on risk adjusted cash
flows related to each incomplete project. The Company believes that such fair
values do not exceed the amount a third party would pay for each such in-process
technology. At the date of each of the acquisitions, the projects associated
with the IPRD efforts had not yet reached technological feasibility and the R&D
in progress had no alternative future uses. Accordingly, these costs were
expensed.

     Forecasts of future results that management believes are likely to occur
were the basis for assigning value to IPRD. For the i-Planet and Beduin
acquisitions, the values assigned to IPRD were determined by estimating the
costs to develop the purchased in-process technology into commercially viable
products, estimating the resulting net cash flows from each project, excluding
the cash flows related to the portion of each project that was incomplete at the
acquisition date, and discounting the resulting net cash flows to their present
value. Each of these forecasts were based upon future discounted cash flows,
taking into account the state of development of each in-process project, the
cost to complete that project, the expected income stream, the life cycle of the
product ultimately developed, and the risks associated with successful
development and commercialization of each project. Projected future net cash
flows attributable to the in-process technology, assuming successful development
of such technologies, were discounted to their present value using a discount
rate which was derived based on the Company's estimated WACC plus a risk premium
to account for the inherent uncertainty surrounding the successful completion of
each project and the associated estimated cash flows. The discount rates used in
valuing the net cash flows from each purchased in-process technology were 25%
for the i-Planet acquisition and 40% for the Beduin acquisition. These discount
rates are higher than the Company's WACC due to the inherent uncertainties in
the estimates described above, including the uncertainty surrounding the
successful development of the purchased in-process technologies, the useful life
of such technologies, the profitability levels of such technology and the
uncertainty of technological advances that are unknown at this time.

     Given the uncertainties of the development process, no assurance can be
given that deviations from these estimates will not occur. Management expects to
continue the development of each project and believes that there is a reasonable
chance of successfully completing such development. However, as there is risk
associated with the completion of the in-process projects due to the remaining
efforts to achieve technological feasibility, rapidly changing customer needs,
complexity of technology and growing competitive pressures, there can be no
assurance that any project will meet with either technological or commercial
success. Failure to successfully develop and commercialize these in-process
projects would result in the loss of the expected economic return inherent in
the fair value allocation. Additionally, the value of other intangible assets
acquired may become impaired.

INTEREST INCOME, NET

     Net interest income was $20.3 million for the second quarter and $35.7
million for the first six months of fiscal 1999, compared with $10.2 million and
$20.8 million, respectively for the corresponding periods in fiscal 1998. The
increases in 1999 are primarily the result of higher interest earnings due to a
larger average portfolio of cash and short-term investments.

                                       16
<PAGE>   17

INCOME TAXES

     The Company's effective income tax rate was 33% for the second quarter and
first six months of fiscal 1999, before non-recurring tax charges of $3.2
million resulting from a write-off of IPRD associated with the acquisition of
i-Planet in the second quarter of fiscal 1999 and $30.4 million resulting from a
write-off of IPRD associated with the acquisition of NetDynamics in the first
quarter of fiscal 1999. The effective tax rate including such charges for the
second quarter and six months ended December 27, 1998 was 33.8% and 38.5%,
respectively. The Company's effective income tax rate for the second quarter and
six months ended December 28, 1997 was 33% before a tax charge of $19.8 million
resulting from a write-off of IPRD associated with the acquisitions of Diba Inc.
and Integrity Arts, Inc. in the first quarter of fiscal 1998. The Company
currently expects its effective tax rate to remain at 33% for the balance of
fiscal 1999, exclusive of any acquisition- related charges.

FUTURE OPERATING RESULTS

COMPETITION

     The markets for Sun's hardware and software products and services are
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
principally with Hewlett-Packard Company, International Business Machines
Corporation, Compaq Computer Corporation, Silicon Graphics, Inc. and EMC
Corporation, in many segments of the network computing market across a broad
spectrum of customers. The Company expects the markets for its products,
technologies, and services, 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 many of
its competitors, aggressively position themselves to benefit from this shifting
of customer buying patterns and demand. The Company is also facing competition
from certain systems manufacturers, including Dell Computer Corporation and
certain of its competitors listed above, whose products are 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 introduction of its own new enhanced products. The Company expects
this pressure to continue and intensify throughout fiscal 1999. 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.

PRODUCT DEVELOPMENT

     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 recent 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

                                       17
<PAGE>   18

Company's older products. As a result, the Company's operating results could be
materially 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.

MANUFACTURING AND SUPPLY

     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 Texas
Instruments Incorporated for different implementations of SPARC(TM)
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 materially 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 materially 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 material 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
materially 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 materially
adversely affected due to the Company's obligations to fulfill such
noncancelable purchase commitments.

SALES, DISTRIBUTION AND MARKETING

     Generally, the computer systems sold by Sun, such as products based on
UltraSPARC (TM) processors, 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
materially adversely affect the future operating results of the Company.

     A significant portion of the Company's revenues is derived from
international sales and is therefore subject to inherent risks related thereto,
including the general economic and political conditions in each country,
currency exchange rate fluctuations, the effect of the tax structures of various
jurisdictions, changes to and compliance with a variety of foreign laws and
regulations, trade protection measures and import and export licensing
requirements. There can be no assurance that the economic crisis and currency
issues currently being experienced in certain parts of Asia will not have an
adverse effect on the Company's revenue or revenue growth rates in the future.
The impact of any of the foregoing factors could have a material adverse effect
on the Company's future financial condition and operating results.

                                       18
<PAGE>   19

     Seasonality also affects the Company's 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 accordingly. Additionally, the Company plans to continue to
evaluate and, when appropriate, make acquisitions of complementary technologies,
products or businesses. As part of this process, the Company will continue to
evaluate the changing value of its assets, and when necessary, make adjustments
thereto. Acquisitions may involve amortization of acquired intangible assets in
periods following such acquisitions. In addition, acquisition transactions are
accompanied by a number of risks, including, among other things, those
associated with integrating operations, personnel, and technologies acquired,
and the potential for unknown liabilities of the acquired business.

     One customer accounted for more than 10% of revenues in fiscal 1998. Any
termination by a significant customer of its relationship with the Company or
material reduction in the amount of business such a customer does with the
Company could materially adversely effect the Company's business, financial
condition or operating results.

BUSINESS PRACTICES, PROCESSES AND INFORMATION SYSTEMS

     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, during fiscal 1999 the Company implemented
a number of new business practices and a series of related information systems
across the enterprise that affect numerous operational and financial systems and
processes. Although the systems were fully operational by the end of the second
quarter of fiscal 1999, these systems will be further tested in the second half
of the Company's fiscal year, and in particular, the fourth quarter to the
extent that the Company experiences higher volumes of orders and shipments as it
has typically experienced during these periods. In addition, during the balance
of fiscal 1999, the Company expects to continue its efforts to optimize usage of
systems capabilities, enhance user skills surrounding system features, and
reduce runtime errors. However, there can be no assurance that the system will
be able to support the increased volume of activities expected at the Company's
fiscal year end.

     The time period in which the new business practices and related information
systems will be fully tested and leveraged are forward-looking statements
subject to risks and uncertainties, and actual results may differ materially
from those set forth above as a result of a number of risk factors. In
particular, the ability to fully leverage systems capabilities are subject to a
number of risks, including the complexity of the new systems themselves and the
need for substantial and comprehensive employee training in connection with the
adoption of such new business practices and information systems. While the
Company has tested these new systems and processes in advance of their
implementation and continues to monitor the systems and processes ability to
support increased volumes of transactions, there are inherent limitations in the
Company's ability to simulate a full-scale operating environment in advance of
actual transaction volumes. Any increase in the volume of orders and shipments
of products during the last half of the fiscal year may have a material adverse
effect on the Company's business and operating results, if the systems and
processes are unable to support the increased volume of activity. In addition,
to the extent that the Company encounters problems with these new systems and
practices that prevent or limit their full utilization, there could be a
material adverse impact on the Company's operating results.

YEAR 2000 COMPLIANCE

     Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As the Year 2000
approaches, these code fields will need to be able to distinguish years
beginning with "19" from those beginning with "20." As a result, in less than a
year, computer systems and/or software products used by many companies may need
to be upgraded to comply with such Year 2000 requirements. The Company is
currently expending resources to review its products and services, as well as
its internal use software in order to identify and modify those products,
services and systems that are not Year 2000 compliant. The Company believes that
the vast majority of these costs are not incremental to the Company but
represent a reallocation of existing resources and include regularly scheduled
system upgrades

                                       19
<PAGE>   20

and maintenance. In addition, the Company is working to make custom coding
enhancements to its internal systems (described in the above paragraphs) so that
such systems will be Year 2000 compliant by the end of fiscal year 1999.

     Although the Company believes that the costs associated with the
aforementioned Year 2000 efforts are not material, the Company currently
estimates that such costs will be approximately $35 million, of which
approximately $5 million has been spent to date. The aforementioned costs are
estimates due in large part to the fact that the Company does not separately
track the internal labor costs associated with Year 2000 compliance, unless such
costs are incurred by individuals devoted primarily to Year 2000 compliance
efforts. These cost estimates do not include any potential costs related to any
customer or other claim. In addition, these cost estimates are based on the
current assessment of the ongoing activities described above, and are subject to
change as the Company continuously monitors these activities. The Company
believes any modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material
adverse effect on the Company's operating results. The Company currently expects
the aforementioned evaluation of its products, services, and systems and any
remediation necessary will be completed by the end of fiscal year 1999. The
Company's expectations as to the extent and timeliness of any modifications
required in order to achieve Year 2000 compliance and the costs related thereto
are forward-looking statements subject to risks and uncertainties. Actual
results may vary materially as a result of a number of factors, including, among
others, those described in this section. There can be no assurance however, that
the Company will be able to successfully modify on a timely basis such products,
services and systems to comply with Year 2000 requirements, which failure could
have a material adverse effect on the Company's operating results.

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

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

     The Company also faces risks to the extent that suppliers of products,
services and systems purchased by the Company and others with whom the Company
transacts business on a worldwide basis do not have business systems or products
that comply with Year 2000 requirements. To the extent that Sun is not able to
test technology provided by third party hardware or software vendors, Sun is in
the process of obtaining Year 2000 compliance certifications from each of its
major vendors that their products and internal systems, as applicable, are Year
2000 compliant. In the event any such third parties cannot timely provide the
Company with products, services or systems that meet the Year 2000 requirements,
the Company's operating results could be materially adversely affected.
Furthermore, a reasonably likely worst case scenario would be if one of

                                       20
<PAGE>   21

the Company's major vendors experienced a material disruption in business, which
caused the Company to experience a material disruption in business, such a
disruption would have a material adverse effect on the Company's business,
financial condition and operating results. Should either the Company's internal
systems or the internal systems, products or services of one or more of the
Company's major vendors fail to achieve Year 2000 compliance, the Company's
business, financial position or results of operations could be materially
adversely affected. The Company is currently developing contingency plans to
deal with potential Year 2000 problems related to its internal systems and
products and services provided by outside vendors and expects these plans to be
complete by the end of fiscal year 1999.

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

EURO COMPLIANCE

     Eleven of the fifteen member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and the Euro
and adopted the Euro as their common legal currency effective for the initial
implementation date of January 1, 1999. The Euro trades on currency exchanges
and is available for non-cash transactions, while the legacy currencies will
remain legal tender in the participating countries for a transition period
between January 1, 1999 and January 1, 2002. During the transition period,
cash-less payments can be made in the Euro and parties can elect to pay for
goods and services and transact business using either the Euro or the legacy
currency. Between January 1, 2002 and July 1, 2002, the participating countries
will introduce Euro notes and coins and withdraw all legacy currencies.

     The Company has expended and continues to expend resources to review and
modify its products to support the Euro's requirements, determine pricing
strategies in the new economic environment, analyze the legal and contractual
implications for contracts, evaluate system capabilities, and ensure banking
vendors can support the Company's operations with respect to Euro transactions
for the initial implementation as of January 1, 1999 and during the transition
period through to January 1, 2002 and thereafter. The Company does not expect
that the introduction and use of the Euro will materially affect the Company's
foreign exchange and hedging activities, expects that modifications will be made
to its business operations and systems, as necessary, on a timely basis and does
not believe that the cost of such modifications will have a material adverse
impact on the Company's operating results. The Company's expectations as to the
extent and timeliness of modifications required to accommodate the conversion to
Euro transactions is a forward-looking statement subject to risks and
uncertainties. Actual results may vary materially, as a result of a number of
factors, including among others, those described in this paragraph. There can be
no assurance that the Company will be able to complete such modifications to
comply with Euro requirements, which could have a material adverse effect on the
Company's operating results. In addition, the Company faces risks to the extent
that vendors upon whom the Company relies and their suppliers are unable to make
appropriate modifications to support Euro transactions. The Company has not yet
completed its evaluation of the impact of the Euro upon its functional currency
designations.

                                       21
<PAGE>   22

     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

     The Company's financial condition strengthened as of December 27, 1998 when
compared with June 30, 1998. During the first six months of fiscal 1999, cash
flows from operating activities generated $771.8 million in cash and cash
equivalents. Non-cash expenses affecting cash provided by operating activities
in the first six months of fiscal 1999 included depreciation and amortization
expense of $313.4 million, tax benefits of options exercised of $96.8 million
and charges for IPRD of $92 million in connection with the acquisitions of
NetDynamics, i-Planet and Bediun. Favorably impacting cash provided by
operations were increases in accounts payable and other liabilities of $114.7
million and $144.5 million, respectively, which reflect the timing of payments
for inventory and other items. Offsetting these items, accounts receivable
increased $258.7 million which reflects an increase in days sales outstanding.
Additionally, other current assets increased due to the timing of payments for
insurance and other taxes. Other long-term assets increased primarily due to an
increase in intangible assets in connection with the acquisition of NetDynamics.

     The Company's investing activities used $907.5 million of cash in the first
six months of fiscal 1999, an increase of $353 million from the prior year's
comparable period. The increase resulted primary from increased acquisitions of
short-term investments during the first six months of fiscal 1999, as compared
with the prior year's comparable period. Also included in investing activities
is capital spending for real estate development, as well as capital additions to
support increased headcount, primarily in the Company's engineering, services
and marketing organizations.

     At December 27, 1998, the Company's primary sources of liquidity consisted
of cash, cash equivalents and short-term investments of $1,572.8 million and a
revolving credit facility with banks aggregating $500 million, which was
available subject to compliance with certain covenants. Additionally, 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 billion. On October 24, 1997, the Registration
Statement became effective, so that the Company may now choose to offer, from
time to time, the securities pursuant to Rule 415 in one or more separate
series, in amounts, at prices and on terms to be set forth in the prospectus
contained in the Registration Statement and in one or more supplements to the
prospectus. The Company believes that the liquidity provided by existing cash
and short-term investment balances and the borrowing arrangements described
above will be sufficient to meet the Company's capital requirements through
fiscal 1999. 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.

                                       22
<PAGE>   23

                          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. On March
24, 1998 the United States District Court judge ruled in favor of the Company
granting a preliminary injunction directing Microsoft Corporation to cease using
the Company's Java Compatible Logo(TM) on Microsoft products that failed to pass
the applicable test suites from Sun. In addition, on May 12, 1998, the Company
filed a second amended complaint alleging copyright infringement by Microsoft
and motions requesting further preliminary injunctive relief directed against
the planned release by Microsoft of additional products that failed to pass the
applicable test suites from Sun. The Court held hearings and arguments on such
motions on September 8, 9, and 10, 1998. On November 17, 1998, the District
Court issued an Order granting, in substantial part, Sun's request for
preliminary injunctions. On December 15, 1998 Microsoft filed notice of its
intent to appeal the District Court's Order and on December 18, 1998 Microsoft
filed Motions with the District Court to extend the time for compliance with the
Order and to clarify or modify the Order. On December 29, 1998 the District
Court issued a further Order directing the parties to schedule a settlement
conference with respect to certain issues before a designated Magistrate or
mutually selected individual. On January 13, 1999, Microsoft filed an appeal to
the District Court's Order issued on November 17, 1998. The Company believes
that the outcome of this matter will not have a material adverse impact on Sun's
financial condition, results of operations or cash flows in any given fiscal
year.

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

     On November 11, 1998 the Annual Meeting of Stockholders of the Company was
held in Menlo Park, California. The results of voting of the 313,381,495 shares
of Common Stock represented at the meeting or by proxy are described below.

     An election of directors was held with the following individuals being
elected to the Board of Directors of the Company:

<TABLE>
<CAPTION>
                          NAME                             SHARES VOTED FOR   VOTES WITHHELD
                          ----                             ----------------   --------------
<S>                                                        <C>                <C>
Scott G. McNealy.........................................    314,513,658         1,581,681
L. John Doerr............................................    305,306,845        10,788,494
Judith L. Estrin.........................................    314,554,906         1,540,433
Robert J. Fisher.........................................    314,551,674         1,543,665
Robert L. Long...........................................    314,544,221         1,551,118
M. Kenneth Oshman........................................    314,556,052         1,539,287
A. Michael Spence........................................    314,511,203         1,584,136
</TABLE>

     The seven nominees who received the highest number of votes (all of the
above individuals) were elected to the Board of Directors.

     The stockholders approved an amendment to the Company's 1990 Long-Term
Equity Incentive Plan in order to increase the number of shares of Common Stock
authorized for issuance thereunder by 18,000,000 shares of Common Stock to an
aggregate of 119,400,000 shares. There were 193,531,834 votes cast for the
amendment, 121,004,835 votes cast against the amendment and 1,558,670
abstentions.

                                       23
<PAGE>   24

     The stockholders approved an amendment to the Company's 1988 Directors'
Stock Option Plan in order to decrease the number of shares of Common Stock
subject to the one-time automatic nonemployee director grant (granted on the
date of the initial appointment of a director who is not affiliated with an
entity having an equity investment in the Company) from 80,000 shares to 30,000
shares. There were 259,580,690 votes cast for the amendment, 54,345,777 votes
cast against the amendment and 2,168,872 abstentions.

ITEM 5. OTHER INFORMATION

(A) SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER

     None

(B) NON-RULE 14a-8 STOCKHOLDER PROPOSALS

     Proposals of the Company's stockholders that such stockholders intend to
present at the Company's 1999 Annual Meeting of Stockholders (the "Annual
Meeting"), but not included in the Company's Proxy Statement and form of Proxy
related to the Annual Meeting (a "Non-Rule 14a-8 Proposal"), must be received by
the Company's Secretary at the Company's offices at 901 San Antonio Road, Palo
Alto, California 94303 no later than September 13, 1999 and no earlier than
August 12, 1999. In the event that the Company does not receive timely notice
with respect to a Non-Rule 14a-8 Proposal, management of the Company would use
its discretionary authority to vote the shares it represents as the Board of
Directors may recommend.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

<TABLE>
    <S>      <C>
    10.64*   Registrant's 1998 Directors' Stock Option Plan as amended on
             August 12, 1998.
    10.66(1) Registrant's 1990 Long-Term Equity Incentive Plan, as
             amended on August 12, 1998.
    10.93+*  Strategic Development and Marketing Agreement dated November
             23, 1998 by and between America Online, Inc. and the
             Registrant.
    27.0*    Financial Data Schedule for the period ended December 27,
             1998.
</TABLE>

---------------
 * Previously filed.

 + Confidentiality Treatment Requested.

(1) Incorporated by reference to Exhibit 4.2 filed as an exhibit to Registrant's
    Amendment No. 1 to Registration Statement Form S-8/A file number 333-67183
    filed with the Securities and Exchange Commission on January 26, 1999.

(B) REPORTS ON FORM 8-K

     No reports on Form 8-K were filed during the quarter ended December 27,
1998.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's market risk disclosures set forth in the 1998 Form 10-K have
not changed significantly through the quarter ended December 27, 1998.

                                       24
<PAGE>   25

                                   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, Corporate Resources
                                                and Chief Financial Officer


                                          By /s/ MICHAEL L. POPOV


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

                                                      Michael L. Popov

                                                Vice President and Corporate
                                                         Controller,
                                                  Chief Accounting Officer


Dated: June 14, 1999


                                       25
<PAGE>   26

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                                                                   PAGE
    -------                                                                  ----
    <S>        <C>                                                           <C>
    10.64 *    Registrant's 1998 Directors' Stock Option Plan as amended on
               August 12, 1998.............................................
    10.66(1)   Registrant's 1990 Long-Term Equity Incentive Plan, as
               amended on August 12, 1998..................................
    10.93+*    Strategic Development and Marketing Agreement dated November
               23, 1998 by and between America Online, Inc. and the
               Registrant..................................................
    27.0  *    Financial Data Schedule for the period ended December 27,
               1998........................................................
</TABLE>

---------------
 * Previously filed.

 + Confidentiality Treatment Requested.

(1) Incorporated by reference to Exhibit 4.2 filed as an exhibit to Registrant's
    Amendment No. 1 to Registration Statement Form S-8/A file number 333-67183
    filed with the Securities and Exchange Commission on January 26, 1999.