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Please read the Safe Harbor Statement at the bottom of this page - it’s important (and beautifully written .

If you’ve seen the press release, you know we had a good fourth quarter to close out our 2006 fiscal year.

This is now my first full quarter as CEO - and I’m pleased with our progress. Our basic restructuring is underway (that’s what the big charge was), and we showed some good growth on the top line. We’re seeing a lot of demand, which showed up as revenue that beat Wall Street estimates, very solid bookings, and good deferred (future) revenue.

So I thought I’d add some color to our numbers, and put some of our competitor’s comments into context. Answering the questions surrounding “why’d you grow when others were having a hard time?”

First, the market is growing.

We see no global slowdown in IT. Despite what one competitor said. Our key customers (those that view information technology as a competitive advantage, not a cost center) are continuing to invest. They’re investing to drive on-line relationships, fuel competitive advantage, and drive efficiencies - but mostly they’re investing because they see a return.

We saw especially good demand in our computer systems business (which grew in a quarter where some of our biggest competitors shrank) - and especially on the low end/high volume segment of our product line. Our newest Niagara UltraSPARC systems surpassed the $100M per quarter mark, just about the fastest ramp of any product I can remember. Our Galaxy x64 systems grew way faster than many of our x86 peers (and that was before the big launch that redefined our product set), and we grew our StorageTek business faster than their standalone history - which means we’re seeing revenue synergies. We closed several great embedded Java platform deals, too, with three of the largest consumer electronics companies.

That said, I’m definitely seeing the enterprise PC business slow down. Corporate users are putting off new PC’s until Vista comes into view, while consumers (witness booming results from Motorola, Nokia and Apple) are biasing away from PC’s for really great consumer devices. (Ask a teenager which they’d prefer, a new phone, or a new PC…)

Phones powered by Java technology, Blu Ray DVD players (I saw my first in a Sony store this weekend), XM Radios, Vonage phones - those devices, in aggregate, will radically outship PC’s over the coming year. And as a result, they’ll drive more growth in demand for network infrastructure than PC’s. (Phones aren’t just for phone calls, after all.) So as we’ve been saying for a while, adoption of the Java platform is a leading indicator of Sun’s business - just like more lightbulbs drive demand for bigger generators (even if you don’t own the lightbulb factory).

Second, choice matters - we’re opening new doors.

Greater than 60% of the customers we’re meeting through our Try and Buy program are new to Sun. (Well above my expectations.) We exceeded the 5 million license mark for Solaris 10 in Q4 - the majority running on Dell, HP and IBM computers. (Go ahead, read that sentence again, I always read it twice.) We’re reaching out beyond Sun’s traditional hardware base, and beyond the world of proprietary software - to customers we may never have otherwise met, who now want to talk to us about network identity, data management and business integration. Frankly, Dell, HP and IBM are now channel partners. Please quote me.

And the addition of Ubuntu Linux on our SPARC servers means we’re now talking to leading edge Linux customers about consolidating outdated infrastructure. Add in to the mix that we run Windows on our Galaxy x64 systems, and that we routinely attach and support StorageTek systems on IBM mainframes - it’s all upside for Sun’s customers, and Sun’s shareholders. Choice drives opportunity. And customer acquisition.

Third, innovation matters more than price.

Being cheap (or cutting corners on components) doesn’t matter as much as delivering value and innovation. A 230 MPH supercar that gets 9 miles to a $4 gallon of gas, isn’t nearly as interesting to today’s consumer as a Tesla - that uses electricity at a cost of about 1 cent/mile (and appears to outperform most supercars, and yes, I’d like to own one, and no, I haven’t convinced my wife). And Niagara is to Tesla as [competitor here] is to an outdated supercar. (And again, if you’d like to try a FREE NIAGARA for 60 days, - we pay return postage if you don’t like it.)

Datacenters have to focus on operational cost as much as acquisition price - that’s a design priority for Sun. That you don’t have to service our newest x4500 (Thumper) storage, but can instead let drives fail in place and just reclaim the space once a year, makes it more competitive than what a hobbyist can build for $1.9/gigabyte. That we can do it in four rack units, at <$2/gig, while running plain vanilla Solaris on the machine - matters a ton to a customer that wants to manage 500 of them. More than it might to a hobbyist who wants to put one in his den (have I mentioned that’s an expensive demographic to please?).

Lastly, execution matters.

I want to congratulate and thank the worldwide operations teams - who got us through our ROHS and WEEE transitions without a scratch. If there were an award for smooth execution, you’d get it folks.

And to the sales and service organizations for delivering on Q4 for us and our customers - you did a fantastic job, challenges and all. And remember, lots of demand is a first class problem to have (painful and tiring though it may be when you’re wading through it…).

I’m feeling great about our competitive position, about getting our basic restructuring in place, and great about the market opportunity. So much so, we’re having a debate internally about bringing back one of our taglines, “We’re the Dot in Dot Com.” Or refreshed, “We’re the Dot in 2.0.”

So, what do you think? Comments welcome

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Safe Harbor Statement: This blog entry contains predictions, projections and other forward-looking statements regarding Sun’s expected future financial results and business opportunities. This includes statements regarding demand for our products; growth of and investments in the IT market; revenue synergies from our acquisitions; increased demand for network infrastructure; and our market opportunity. Our actual future results may be very different from our current expectations. Factors that could cause actual results to differ materially from our expectations include: increased competition; failure to rapidly and successfully develop and introduce new products; risks associated with Sun’s international customers and operations; reduced spending in the IT market; and failure to successfully integrate acquired companies. We encourage you to read the 10-Ks, 10-Qs and other reports that we file periodically with the SEC for a discussion of these and other risks. We do not currently intend to update these forward looking statements.

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