SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(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 29, 1996 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)

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

                2550 Garcia Avenue, Mountain View, CA 94043-1100
             (Address of principal executive offices with zip code)

Registrant's telephone number, including area code:               (415) 960-1300

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

  Indicate  by check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                   YES___X__                          NO______

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

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

                   YES______                          NO______

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

           Class                                Outstanding at December 29, 1996
Common stock - $0.00067 par value                          368,084,106


<PAGE>





                                      INDEX



                                                                          PAGE
                                                                          ----
  COVER PAGE                                                               1

  INDEX                                                                    2

  PART I - FINANCIAL INFORMATION

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

         Item 2 - Management's Discussion and Analysis of
                  Results of Operations and Financial Condition            7

  PART II - OTHER INFORMATION

         Item 5 - Other Information                                        12
         Item 6 - Exhibits and Reports on Form 8 - K                       14

  SIGNATURES                                                               15



                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

  ITEM 1 - FINANCIAL STATEMENTS

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


                                                    December 29,      June 30,
                                                       1996             1996
                                                   -----------      -----------
                                                   (unaudited)
ASSETS
Current assets:
       Cash and cash equivalents                   $   438,083      $   528,854
       Short-term investments                          312,657          460,743
       Accounts receivable, net                      1,392,873        1,206,612
       Inventories                                     394,919          460,914
       Deferred tax asset                              201,134          177,554
       Other current assets                            229,224          199,059
                                                   -----------      -----------
            Total current assets                     2,968,890        3,033,736
Property, plant and equipment, at cost               1,549,677        1,282,384
Accumulated depreciation and amortization             (848,739)        (748,535)
                                                   -----------      -----------
                                                       700,938          533,849
Other assets, net                                      196,792          233,324
                                                   -----------      -----------
                                                   $ 3,866,620      $ 3,800,909
                                                   ===========      ===========



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Short-term borrowings                       $    26,901      $    49,161
       Accounts payable                                383,981          325,067
       Accrued liabilities                             804,805          801,550
       Other current liabilities                       265,764          313,491
                                                   -----------      -----------
            Total current liabilities                1,481,451        1,489,269
Long-term debt and other obligations                    81,002           60,154
Stockholders' equity                                 2,304,167        2,251,486
                                                   -----------      -----------
                                                   $ 3,866,620      $ 3,800,909
                                                   ===========      ===========


                             See accompanying notes.

                                       3
<PAGE>



<TABLE>


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

<CAPTION>

                                                                          Three Months Ended                  Six Months Ended
                                                                    ----------------------------        ----------------------------
                                                                    December 29,      December 31,      December 29,    December 31,
                                                                       1996              1995              1996            1995
                                                                    ----------        ----------        ----------      ----------
<S>                                                                 <C>               <C>               <C>             <C>       
Net revenues                                                        $2,081,588        $1,751,383        $3,940,607      $3,236,661
Cost and expenses:
       Cost of sales                                                 1,033,402           972,665         2,005,503       1,789,498
       Research and development                                        201,010           166,295           387,278         310,380
       Selling, general and administrative                             591,331           434,452         1,115,997         845,868
                                                                    ----------        ----------        ----------      ----------
           Total costs and expenses                                  1,825,743         1,573,412         3,508,778       2,945,746
Operating income                                                       255,845           177,971           431,829         290,915
Interest income, net                                                     6,421             7,395            11,893          19,004
                                                                    ----------        ----------        ----------      ----------
Income before income taxes                                             262,266           185,366           443,722         309,919
Provision for income taxes                                              83,925            59,317           141,991          99,174
                                                                    ----------        ----------        ----------      ----------
Net income                                                          $  178,341        $  126,049        $  301,731      $  210,745
                                                                    ==========        ==========        ==========      ==========

Net income per common and
       and common-equivalent
       share                                                        $     0.46        $     0.32        $     0.77      $     0.54
                                                                    ==========        ==========        ==========      ==========

Common and common-equivalent
       shares used in the calculation
       of net income per share                                         388,738           388,600           389,428         393,598
                                                                    ==========        ==========        ==========      ==========


<FN>
                                                       See accompanying notes.
</FN>
</TABLE>
                                                                 4
<PAGE>


<TABLE>

                                                       SUN MICROSYSTEMS, INC.
                                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                             (unaudited)
                                                           (in thousands)
<CAPTION>

                                                                                                         Six Months Ended
                                                                                               ------------------------------------
                                                                                               December 29,             December 31,
                                                                                                   1996                     1995
                                                                                               -----------              -----------
<S>                                                                                            <C>                      <C>        
Cash flow from operating activities:
       Net income                                                                              $   301,731              $   210,745
       Adjustments to reconcile net income
                to operating cash flows:
                Depreciation, amortization and
                         other non-cash items                                                      198,788                  172,120
                Increase in accounts receivable                                                   (186,261)                 (30,688)
                Decrease (increase) in inventories                                                  65,995                  (60,264)
                Increase in accounts payable                                                        58,914                   40,498
                Net increase in other current
                         and non-current assets                                                    (37,045)                 (35,566)
                Net increase (decrease) in other current
                         and non-current liabilities                                                12,517                  (62,899)
                                                                                               -----------              -----------
Net cash provided from operating activities                                                        414,639                  233,946
                                                                                               -----------              -----------
Cash flow from investing activities:
       Acquisition of property, plant and equipment                                               (301,582)                (137,380)
       Acquisition of other assets                                                                 (22,241)                 (47,892)
       Acquisition of short-term investments                                                      (221,081)              (1,027,664)
       Maturities of short-term investments                                                        371,676                1,538,666
                                                                                               -----------              -----------
Net cash (used by) provided from investing activities                                             (173,228)                 325,730
                                                                                               -----------              -----------
Cash flow from financing activities:
       Issuance of common stock                                                                     18,101                   29,814
       Acquisition of treasury stock                                                              (329,531)                (484,047)
       Proceeds from employee stock purchase plans                                                  37,303                   27,770
       Reduction of short - term borrowings, net                                                   (22,260)                 (36,909)
       Reduction of long - term borrowings                                                         (35,795)                 (39,582)
                                                                                               -----------              -----------
Net cash used by financing activities                                                             (332,182)                (502,954)
                                                                                               -----------              -----------
Net increase (decrease)  in cash and cash equivalents                                          $   (90,771)             $    56,722
                                                                                               ===========              ===========
Supplemental disclosures of cash flow information:
       Cash paid during the period for:
       Interest                                                                                $     8,198              $     9,669
       Income taxes                                                                            $   122,888              $   131,396

<FN>

                                                       See accompanying notes
</FN>
</TABLE>
                                                           5

<PAGE>



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



BASIS OF PRESENTATION

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

         While the quarterly financial  information is unaudited,  the financial
         statements included in this report reflect all adjustments  (consisting
         only 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  1996  Annual  Report  to  Stockholders  which is  incorporated  by
         reference in the Company's 1996 Form 10-K.

INVENTORIES (in thousands)

                                December 29, 1996      June 30, 1996
                            -----------------------  -----------------
         Raw materials              $231,730             $267,811

         Work in process              31,081               58,337

         Finished goods              132,108              134,766
                                    --------             --------

                                    $394,919             $460,914
                                    ========             ========


INCOME TAXES

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

STOCK DIVIDEND

The Company  declared  two-for-one  stock split (effected in the form of a stock
dividend) to  stockholders of record as of the close of business on November 18,
1996.  Share and per share amounts  presented  have been adjusted to reflect the
stock dividend.
 
                                      6
<PAGE>




ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
             OPERATIONS AND FINANCIAL CONDITION

<TABLE>
     The  following  table sets  forth  items  from the  Condensed  Consolidated
Statements of Income as a percentage of net revenues:

<CAPTION>

                                                                        Three Months Ended                   Six Months Ended
                                                                      ------------------------            ------------------------
                                                                  December 29,       December 31,      December 29,     December 31,
                                                                      1996              1995              1996               1995
                                                                     ------            ------            ------             ------
<S>                                                                   <C>               <C>               <C>               <C>
Net revenues                                                          100.0%            100.0%            100.0%            100.0%

Cost of sales                                                          49.6              55.5              50.9              55.3
                                                                      ------            ------            ------            ------
      Gross margin                                                     50.4              44.5              49.1              44.7

Research and development                                                9.7               9.5               9.8               9.6

Selling, general and administrative                                    28.4              24.8              28.3              26.0
                                                                      ------            ------            ------            ------
Operating income                                                       12.3              10.2              11.0               9.1

Interest income, net                                                    0.3               0.4               0.3               0.6
                                                                      ------            ------            ------            ------
Income before income taxes                                             12.6              10.6              11.3               9.7

Provision for income taxes                                              4.0               3.4               3.6               3.1
                                                                      ------            ------            ------            ------
      Net income                                                        8.6%              7.2%              7.7%              6.6%
                                                                      ======            ======            ======            ======
RESULTS OF OPERATIONS
</TABLE>

Net revenues

Net revenues were $2.082  billion for the second  quarter and $3.941 billion for
the first six months of fiscal 1997, representing increases of 18.9 % and 21.7%,
respectively,  over the comparable periods of fiscal 1996.  Approximately eighty
percent of the growth in revenues  resulted from  increased  demand for servers,
high-end desktop  systems,  and from memory,  storage  options,  and accessories
shipped as part of system  sales.  The  remaining  increase  reflects  growth in
revenues  from other Sun  businesses,  including  service,  aftermarketing,  and
microprocessors, as compared with the corresponding periods of fiscal 1996.

Domestic  net  revenues  increased  by 22.6% and 24.1% while  international  net
revenues  (including  United States  exports) grew 15.4% and 19.5% in the second
quarter and first six months of fiscal  1997,  respectively,  compared  with the
corresponding  periods of fiscal 1996. European net revenues increased 13.9% and
19.3%  while  net  revenues  in Rest of World  increased  17.3% and 19.6% in the
second quarter and first six months of fiscal 1997, respectively,  when compared
with the same  periods of fiscal  1996.  These  increases  are due  primarily to
continued  strengthening  of most of the  markets  in Europe  and the  expanding
markets in Asia.

Compared with the second quarter of fiscal 1996, the dollar has weakened against
the British pound  sterling and  strengthened  against the Japanese yen,  German
mark,  and French franc.  For the six month period ended  December 29, 1996, the
dollar has  strengthened  significantly  against the  Japanese  yen and remained
relatively 

                                       7
<PAGE>

consistent   against  most  major   European   currencies,   compared  with  the
corresponding  period of fiscal  1996.  Management  has  estimated  that the net
impact of currency fluctuations on operating results,  while slightly favorable,
was not  significant  in the  second  quarter  or the first six months of fiscal
1997.

Gross margin

Gross margin was 50.4% for the second quarter and 49.1% for the first six months
of  fiscal  1997,  compared  with  44.5%  and  44.7%,   respectively,   for  the
corresponding  periods in fiscal 1996.  The increase in the gross margin for the
periods compared reflects principally the effects of increased revenue generated
from higher margin servers and memory storage options and  accessories,  as well
as continued Company cost decreases.

The factors  described above resulted in a favorable  impact on gross margin for
the  second  quarter  and first six  months of fiscal  1997.  Systems  repricing
actions may be initiated in the future,  which could result in downward pressure
on gross margins.  Sun's future operating results would be adversely affected if
such repricing actions were to occur and the Company were unable to mitigate the
margin  pressure by maintaining a favorable mix of systems,  software,  service,
and other  revenues and by achieving  component  cost  reductions  and operating
efficiencies.

Research and development

Research  and  development  (R&D)  expenses  were  $201.0  million in the second
quarter  and $387.3  million for the first six months of fiscal  1997,  compared
with  $166.3 and  $310.4  million  for the same  periods  of fiscal  1996.  As a
percentage  of net  revenues,  R&D  expenses  increased  to 9.7% for the  second
quarter  and 9.8% for the first six  months of fiscal  1997,  from 9.5% and 9.6%
respectively  in the  comparable  periods  of fiscal  1996.  Slightly  less than
one-fourth of the dollar increase in the second quarter and the first six months
of fiscal 1997 over the comparable  periods in fiscal 1996 reflects  development
of hardware and  software  products  which  utilize the Java  architecture.  The
remaining increase for the second quarter and first six months of fiscal 1997 is
attributable  to  continued   development  of  UltraSPARC  systems  and  further
development  of products  acquired  through  acquisitions  of  Integrated  Micro
Products,  plc and Cray Business Systems, a division of Cray Research,  Inc. and
increased compensation as a result of higher levels of staffing.

Selling, general and administrative

Selling,  general and administrative  (SG&A) expenses were $591.3 million in the
second  quarter  and  $1,116.0  million in the first six months of fiscal  1997,
compared with $434.5 and $845.9  million for the same periods of fiscal 1996. As
a percentage of net  revenues,  SG&A expenses were 28.4% and 28.3% in the second
quarter and first six months of fiscal 1997, respectively,  and 24.8% and 26.0%,
respectively in the comparable periods of fiscal 1996. Approximately half of the
dollar  increases are  attributable to increased  marketing costs related to new
product introductions and other promotional  programs,  and increases related to
compensation resulting from higher levels of headcount.  The remaining increases
reflect costs  incurred in  connection  with the  Company's  ongoing  efforts to
improve  business  processes and cycle times. The Company expects to continue to
invest in efforts to achieve additional operating efficiencies through continual
review and improvement of business processes.  In addition,  the Company expects
to continue to hire personnel to further expand its demand creation programs and
service support organizations.

Interest income, net

Net interest  income was $6.4 million for the second  quarter and $11.9  million
for the first six months of fiscal  1997,  compared  with $7.4 million and $19.0
million,  respectively,  for the  corresponding  periods  in  fiscal  1996.  The
decrease from the second quarter of fiscal 1997 is primarily the result of lower
interest  earnings due to a

                                       8
<PAGE>

smaller  average  portfolio of cash and investments  offset by interest  savings
from  reduced  debt levels,  as compared to the  corresponding  period in fiscal
1996.  The  decrease  for the first six months of fiscal 1997 is  primarily  the
result of lower interest earnings due to a smaller average portfolio of cash and
investments as compared to the corresponding period in fiscal 1996.

Income taxes

The Company's effective income tax rate for the second quarter and the first six
months of both fiscal 1997 and 1996 was 32%.

FUTURE OPERATING RESULTS

This following section contains forward-looking statements within the meaning of
the  Private  Securities  Litigation  Reform Act of 1995.  Such  forward-looking
statements  involve  risks and  uncertainties  so that  actual  results may vary
materially.

The future  operating  results  discussed below  represent  specific risks which
could impact the  financial  condition  and results over the next few  quarters.
This information below should be read in conjunction with the 1996 Annual Report
to  Stockholders  which is  incorporated by reference in the Company's 1996 Form
10-K.

The market for Sun's products and services is intensely  competitive and subject
to  continuous,  rapid  technological  change,  short  product  life  cycles and
frequent  product  performance  improvements  and price  reductions.  Due to the
breadth of the Company's  product lines and the  scalability of its products and
network  computing model, Sun competes in many segments of the network computing
market across a broad spectrum of customers. The Company expects the markets for
its products and technologies,  as well as its competitors  within such markets,
will continue to change as the rightsizing trend shifts customer buying patterns
to network  based systems which often employ  solutions  from multiple  vendors.
Competition  in these  markets  will also  continue to  intensify as Sun and its
competitors,  principally  Hewlett-Packard,   International  Business  Machines,
Digital  Equipment  Corporation,  and Silicon  Graphics,  aggressively  position
themselves to benefit from this shifting of customer buying patterns and demand.
The Company is also facing competition from these competitors,  as well as other
systems  manufacturers,  such as Compaq  Computer  Corporation and Dell Computer
Corporation,  with respect to such competitors products based on microprocessors
from Intel  Corporation  coupled with Windows NT operating  system software from
Microsoft  Corporation.  These  products  demonstrate  the  viability of certain
networked  personal  computer  solutions  and  have  increased  the  competitive
pressure, particularly in the Company's workstation and lower-end server product
lines.  Finally,  the timing of  introductions  of new  products and services by
Sun's  competitors  may negatively  impact the future  operating  results of the
Company, particularly when such introductions occur in periods leading up to the
Company's  introduction  of its own new enhanced  products.  The Company expects
this  pressure to continue and to intensify  throughout  the remainder of fiscal
1997.  While many other  technical,  service and support  capabilities  affect a
customer's buying decision,  the Company's future operating results will depend,
in part, on its ability to compete with these technologies.

The Company's future operating  results will depend to a considerable  extent on
its  ability to rapidly  and  continuously  develop,  introduce,  and deliver in
quantity  new  systems,   software,   and  service  products,  as  well  as  new
microprocessor  technologies,  that offer its customers enhanced  performance at
competitive prices. The development of new high - performance computer products,
such as the  Company's  recent  development  of the  UltraSPARC 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.

                                       9
<PAGE>

Accordingly,  with the  introduction  of the Company's  enhanced  server systems
during  fiscal 1996,  future  operating  results  will depend to a  considerable
extent on the Company's  ability to closely manage these product  introductions,
as well as  future  product  introductions  , in order to  minimize  unfavorable
patterns of customer  orders,  to reduce levels of older inventory and to ensure
that adequate supplies of new products can be delivered to meet customer demand.
The ability of the Company to match supply and demand is further  complicated by
the  Company's  need to adjust  prices to reflect  changing  competitive  market
conditions as well as the variability and timing of customer orders with respect
to the Company's older products.  As a result,  the Company's  operating results
could be adversely  affected if the Company is not able to correctly  anticipate
the level of demand for the mix of products. Because the Company is continuously
engaged in this product development,  introduction,  and transition process, its
operating results may be subject to considerable fluctuation,  particularly when
measured on a quarterly basis.

The Company is increasingly dependent on the ability of its suppliers to design,
manufacture,   and  deliver   advanced   components   required  for  the  timely
introduction  of new products.  The failure of any of these suppliers to deliver
components  on time or in  sufficient  quantities,  or the failure of any of the
Company's  own  designers to develop  advanced  innovative  products on a timely
basis, could result in a significant  adverse impact on the Company's  operating
results. The inability to secure enough components to build products,  including
new products, in the quantities and configurations required, or to produce, test
and  deliver  sufficient  products  to meet  demand  in a timely  manner,  would
adversely  affect the Company's net revenues and  operating  results.  To secure
components for development,  production,  and introduction of new products,  the
Company frequently makes advanced payments to certain suppliers and often enters
into  noncancelable  purchase  commitments  with  vendors  early  in the  design
process.  Due to the variability of material requirement  specifications  during
the  design  process,   the  Company  must  closely  manage  material   purchase
commitments and respective delivery  schedules.  In the event of a delay or flaw
in the design  process,  the  Company's  operating  results  could be  adversely
affected due to the Company's obligations to fulfill such noncancelable purchase
commitments.

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

Seasonality also affects the Company's  operating  results,  particularly in the
first quarter of each fiscal year. In addition, the Company's operating expenses
are  increasing as the Company  continues to expand its  operations,  and future
operating  results  will be  adversely  affected  if  revenues  do not  increase
accordingly.  Additionally,  the Company plans to continue to evaluate and, when
appropriate,  make  acquisitions  of  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.
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.

                                       10



<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Total assets at December 29, 1996  increased by  approximately  $66 million from
June 30, 1996,  due  principally  to increases  in accounts  receivable  of $186
million,  property,  plant and equipment-net of $167 million,  and other current
assets of $30  million,  offset  by  decreases  in cash,  cash  equivalents  and
short-term  investments  of $239 million and  inventories  of $66  million.  The
increase in accounts  receivable reflects a larger percentage of sales occurring
near  the end of the  quarter  and the  timing  of cash  receipts.  Increase  in
property,  plant and  equipment  reflects the purchase of Phase II of the campus
located in Menlo Park for  approximately  $100 million and capital  additions to
support increased  headcount,  primarily in engineering,  service and marketing.
Other current  assets  increased due to the timing of payments for insurance and
other taxes.  Cash was  principally  used for the systematic  and  opportunistic
repurchases  of 12.1 million  shares of common stock for $329  million,  capital
expenditures of approximately  $200 million,  purchase of Phase II of the campus
located in Menlo Park, and scheduled debt  repayments of $40 million,  offset by
net maturities of short-term investments for $150 million and cash provided from
operations. The reduction in inventories reflects improved inventory management.

Total  current  liabilities  decreased  $8  million  from  June  30,  1996,  due
principally  to a decrease  in other  current  liabilities  of $48  million  and
short-term borrowings of $22 million,  offset by an increase in accounts payable
of $59  million.  The  decrease  in other  current  liabilities  and  short-term
borrowings  reflects the final payment related to the Company's senior notes and
scheduled debt repayments.  The increase in accounts payable reflects  increased
inventory receipts during the last three weeks of the quarter as compared to the
fourth quarter of fiscal 1996.

At December 29, 1996, the Company's  primary  sources of liquidity  consisted of
cash,  cash  equivalents  and  short-term  investments  of  $750  million  and a
revolving  credit  facility  with  banks  aggregating  $300  million,  which was
available  subject to compliance with certain  covenants.  The Company  believes
that the liquidity provided by existing cash and short-term  investment balances
and the  borrowing  arrangement  described  above will be sufficient to meet the
Company's  capital  requirements  through  fiscal  1997.  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. The sufficiency of the Company's capital resources
are forward looking  statements which involve risks and uncertainties and actual
results may vary materially.

                                       11


<PAGE>


                           PART II - OTHER INFORMATION



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

On November 13, 1996, the Annual Meeting of Stockholders of the Company was held
in Menlo Park, California.  An election of directors was held with the following
individuals being elected to the Board of Directors of the Company:

                                Share Voted For          Votes Withheld
                                ---------------          --------------
         Scott G. McNealy        314,141,304               1,592,750
         L. John Doerr           314,200,826               1,533,228
         Judith L. Estrin        314,176,294               1,557,760
         Robert J. Fisher        314,181,142               1,552,912
         Robert L. Long          314,171,094               1,562,960
         M. Kenneth Oshman       314,195,994               1,538,060
         A. Michael Spence       314,172,572               1,561,482

The seven  nominees who  received the highest  number of votes (all of the above
individuals)  were elected to the Board of  Directors.  Votes  withheld from any
nominee were counted for  purposes of  determining  the presence or absence of a
quorum.

The  stockholders   also  approved  an  amendment  to  the  Company's   Restated
Certificate  of  Incorporation  increasing the number of shares of common stock,
par value  $0.00067,  authorized  for issuance  thereunder  from  300,000,000 to
940,000,000  shares.  There were  305,052,626  shares  voted for the  amendment,
6,386,726 shares voted against the amendment,  918,234 abstentions and 3,376,468
broker  non-votes.  The  affirmative  vote of the  holders of a majority  of the
outstanding  shares of common stock outstanding on the record date of the Annual
Meeting  was  needed in order to  approve  the  foregoing  proposal.  Votes cast
against the proposal , abstentions and broker  non-votes,  were counted only for
purposes of determining a quorum and were counted as votes against the proposal.

                                       12
<PAGE>

  ITEM 5 - OTHER INFORMATION

  SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER

      The following is a summary of all sales of the  Company's  Common Stock by
      the Company's  executive officers and directors who are subject to Section
      16 of the Securities  Exchange Act of 1934, as amended,  during the fiscal
      quarter ended December 29, 1996:

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

  William Joy              11/1/96          $30.8906          40,000
                           11/8/96          $31.937           20,000
                           11/22/96         $28.75            20,000
                           11/22/96         $28.7187          20,000
                           11/25/96         $28.687           20,000
                           11/25/96         $28.4062          20,000
                           11/25/96         $28.6562          20,000
                           11/26/96         $28.2812          40,000

  Michael Lehman           11/7/96          $37.7812           8,000
                           11/7/96          $37.7812           8,000
                           11/7/96          $37.7812           8,000

  Eric Schmidt             11/21/96         $29.687           10,000
                           11/22/96         $28.937           10,000

  John Shoemaker           11/6/96          $31.72            20,000
                           10/31/96         $30.392            2,000

  Chet Silvestri           11/8/96          $32.312           20,000
                           11/27/96         $28.625           20,000

  Michael Spence           11/7/96          $31.9687          20,000

  Dorothy Terrell          11/7/96          $32.0312           6,000
                           11/8/96          $32.5312           6,000
                           11/7/96          $31.7844          20,000
                           11/8/96          $32.7085           6,000

  Edward Zander            11/27/96         $57.0625           5,000


                                       13
<PAGE>


  ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

      a) EXHIBITS

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

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

                  10.91    Form of Vice  President  Change of Control  Severance
                           Plan

                  10.92    Form of  Director-Level  Change of Control  Severance
                           Plan

                  11.0     Statement re: Computation of Earnings Per Share

                  27.0     Financial data for the period ended December 29, 1996



                                       14
<PAGE>

                                   SIGNATURES



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



                             SUN MICROSYSTEMS, INC.



                             BY

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



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



  Dated:   February 11, 1997

                                       15
<PAGE>





                               EXHIBITS TO REPORT
                               ------------------
                                  ON FORM 10-Q
                                  ------------
                FOR THE QUARTERLY PERIOD ENDED DECEMBER 29, 1996
                ------------------------------------------------