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Executives

Karen Kahn - Vice President of Global Communications, Sun Microsystems

Jonathan Schwartz – CEO and President, Sun Microsystems

Marten Mickos – CEO, MySQL

Rich Green - Executive Vice President of Software, Sun Microsystems

Analysts

Toni Sacconaghi – Sanford Bernstein

Sean Kerner – InternetNews.com

Katy Huberty – Morgan Stanley

[Pashic Tibido] – Computer World

Matt Lawton – IBC

Sun Microsystems, Inc. (JAVA) Update Call January 16, 2008 10:00 AM ET

Operator

Good morning, at this time I would like to welcome everyone to the Sun Microsystems Conference Call. (Operator Instructions) I would now like to turn the call over to Ms. Karen Kahn, Vice President of Global Communications for Sun Microsystems.

Karen Kahn

Thank you for joining the Sun Microsystems Conference Call to discuss today’s news announcing the attempt to acquire MySQL. I’m Karen Kahn, with me this morning is Jonathan Schwartz, Sun CEO and President and live from Orlando, Florida we have Marten Mickos, CEO of MySQL and Rich Green, Sun’s Executive Vice President of Software. Welcome all of you.

During the course of this conference call we will be making projections and other forward looking statements. The actual future results may be different from the current expectations. We encourage you to read the 10-K’s and 10-Q’s that we file periodically with the SEC. These documents contain a discussion of the risks facing our business including factors that could cause these forward looking statements not to come true. We do not currently intend to update these forward looking statements. After the prepared remarks on the call today we will devote the remaining time to Q&A.

I’d now like to turn the call over to Jonathan Schwartz.

Jonathan Schwartz

I am thrilled to be with you all this morning to announce what is I think the most important acquisition Sun has made in the history of the company. We’re announcing this morning that we are entering the $15 billion database marketplace by acquiring the fastest growing and the leader of the open source database marketplace MySQL AB. Just at a top level Marten Mickos their CEO is on the call with me as well along with Rich Green who runs Sun Software business to whom Marten will be reporting. Marten will be joining Sun’s Executive Management Group which is the group led by my management team that represents the top 50 or so leaders around the 32,000 employees at Sun. He is going to play a central role as we continue to define and unveil our open source strategy.

MySQL is a fascinating company that has just an outstanding customer list from Facebook and Google and YouTube along with a whole diversity if not the majority of the most exiting web companies in the marketplace but also a diversity of some of the most important traditional enterprises, companies such as Toyota and IKEA and Southwest Airlines and Nokia. It’s just got tremendous presence and tremendous deployment across the world and frankly exceptional strength among both emerging companies as well as emerging economies.

The single biggest impediment to the growth of MySQL in our estimation and we’ve watched very carefully and partnered with MySQL for the last few years is their ability to give piece of mind to a global company that wants to put MySQL into mission critical deployment. It’s very clear to us that that is what our customers have come to expect from Sun and we can deliver exactly that piece of mind to companies that want to put MySQL into mission critical deployment and that’s exactly what we’ll be focused on immediately as we prepare to put the two companies together.

In addition, MySQL is probably among the most popular open source projects and products in the marketplace so they represent just an enormous spectrum of new customers and new opportunities for Sun. We believe that there are synergies in putting the two companies together that will allow MySQL to grow more rapidly and allow Sun to grow more rapidly as well. This is all about growth for both of us, all about investing in the communities that surrounds both companies and both companies products and all about delivering better service to customers and ultimately better value to our shareholders.

With that I guess I’d like to turn it over to Marten Mickos, CEO of MySQL.

Marten Mickos

I can’t say how excited I am about deal, the whole management team and myself, the whole company; we are super excited in joining Sun Microsystems. We see that there is a good cultural fit; there is a good strategic alignment. There is wonderful industry logic that we see underlying this whole transaction. We are the world’s most popular open source database and we power some of the biggest and most popular websites but also telecom networks in the world and we’ve been extending from that base over the last few years going into very mission critical high performance environment.

With this acquisition by Sun we’ll be able to offer those customers even better service, a full stack and at the same time heterogeneous solutions running on a number of platforms with a number of environments. We think it strengthens our ability to serve our existing customers and very importantly serve the new customers that we see coming over as enterprises move over to web based architectures in their enterprising infrastructure which is now happening.

That is in short how we see the whole transaction here. We think it makes wonderful sense, there’s a match in customer base, in thinking about he online network world and serving those who are building online services, online applications, telecom networks and so on.

Rich Green

We are all, as Marten and Jonathan noted, extremely excited about joining up with the MySQL team and going to market together and incorporating their development organization in with ours. There’s a history in acquisitions a set of factors that govern the success of such a combination of organizations and a lot of it has to do with the alignment of culture and alignment of business models. As Jonathan noted I don’t think there could be better match between organizations both internally and externally. With regard to our culture, our business models are open source strategy, etcetera. We are perfectly aligned, we are a full open source organization, in fact, and the largest open source organization in the world and bringing Marten and MySQL on board just underscores that fact and grows that further in the market.

We each have a business model that revolves around free and open access to all of our technology and then business and revenue opportunities providing service and support and upgrades and indemnification of all of our customers worldwide who deploy our technology in mission critical applications as well as the basis of the network economy.

These synergies between the two companies make it a perfect working model on the external side and on the internal side as well. Just as we have overlap in our cultures and businesses we have under lap in our customers. We have a great opportunity to sum across all MySQL’s customers, particularly in the web economy along with our existing customers in the web economy and our historic great success in the enterprise market. All of these customers are in come parts of their organization deploying MySQL at a remarkable growth rate.

As Jonathan noted one of the things that we can instantaneously provide is the security of a worldwide support and services organization. The scale of Sun Microsystems to ensure responsiveness to any issues that may occur as customers move closer to mission critical deployments. It’s also perfectly aligned with our open source projects like GlassFish, Java, OpenOffice and OpenSolaris. We have been very aggressive in making available some of the fastest growing and largest scale, largest number of developer open source programs in recent years and MySQL joins that list of successes in framing us as the largest open source organization in the world.

Another way to look at this deal is actually we’re really putting $1 billion behind the “M” in the LAMP stack and if any of you know lab as Linux, Apache, MySQL and PHP is the foundation of the new network economy. It’s the basis upon which new companies, new ecosystems, new business models are being built. Our investment in that brings Sun aggressively to work closely with all those organizations who are building in that model using that framework as the design center and allowing us to work closely with them in afford us access to provide other of Sun technologies, hardware and software services and other business opportunities to all the organizations who are using “M” as the core of LAMP.

The synergy of our customers and our cultures this just is a most exciting step that Sun is taking in all of my years in the company.

Karen Kahn

Before we begin the question and answer session I’d like to ask that each of you ask one question considering of just one part. We only have about 15 minutes for Q&A. If there is time remaining we’ll be happy to take your additional follow up questions.

Question & Answer Session

Operator

(Operator Instructions) We will take our first question from Toni Sacconaghi with Sanford Bernstein.

Toni Sacconaghi – Sanford Bernstein

Can you comment on the current financials of MySQL, Marten, my estimate is that current 12 months revenues is about $60 to $80 million and profitability is about break even, can you comment on those statements please?

Jonathan Schwartz

We are going to have the financial analyst call at 1 o’clock, I’d redirect you to that call and then obviously we are going to focus on the Q2 pre announced as well as the financial side of it.

Toni Sacconaghi – Sanford Bernstein

Can you comment on, maybe for Marten and then you can comment as well Jonathan. What percentage of MySQL installations today are on Linux versus other operating systems?

Marten Mickos

The most popular operating system we run on is Linux and the next one is Windows and the third one is Solaris and then after that we have Mac OS X and other platforms.

Toni Sacconaghi – Sanford Bernstein

Can you comment on the relative dominance of Linux in the current environments today?

Marten Mickos

Linux is by far the most popular platform among our customers. In terms of downloads we have a high number of Windows downloads as well. You can see some difference there in development and deployments platforms. Most of the deployments are on Linux, most servers are on Linux.

Toni Sacconaghi – Sanford Bernstein

Sun is ambivalent ostensibly about whether customers choose Linux or customers choose Solaris but your economics are obviously very tilted toward Solaris. You talked about how in the future you can imagine giving servers away for free because you can capture the support contract associated with the operating system. If ultimately MySQL is pushing you to espouse more of a Linux oriented stack doesn’t that present more challenges in terms of not having associated revenue from Solaris support contracts?

Jonathan Schwartz

By our estimates around 20% or so of the deployments that we see with MySQL run on Solaris but the most important statistic there is there are about 75% of the deployments we see with Solaris don’t occur on Sun hardware. We are interested, and to some extent, you are pointing up the incredible revenue synergies that are at hand here because we can not only bring a breast of services and technology offerings to the MySQL customer and user base but we can also bring the MySQL customer opportunity to our customer base.

There is frankly very little of MySQL’s current deployments are occurring in large scale mission critical environments which is exactly where we can now take them. We are obviously somewhat legendary for having built some of the largest database installations on earth. We see revenue synergies and upside everywhere we look. The fact that we can now talk to a user base that represents millions and millions of new customer opportunities we just think is extraordinary.

Operator

Our next question comes from Sean Kerner with InternetNews.com.

Sean Kerner – InternetNews.com

Where does this leave PostSQL and Oracle users who are running on Sun now currently?

Jonathan Schwartz

I’ll maybe just touch on this quickly and then pass it over to Rich and Marten as well. We have been one of the earliest backers of PostSQL and we are reaffirming our commitment to that community today in part by saying we believe in the future of open source databases so much so we just put $1 billion behind one of them. We are firmly committed to figuring out the ways that we can optimize and integrate innovations across the two communities to bring the benefits of scale and platform proliferation to both communities. We are very excited about the opportunities, I think we clearly see the future of the database marketplace as being an open source and again we think between MySQL and PostSQL we probably have a large portion of the market covered.

Rich Green

I want to underscore your point. This commitment the $1 billion doesn’t in any way detract from our intent to continue to go forward with PostSQL and its very important because its based on the principles of open source which is developers they get to choose. We wouldn’t want to take the step of choosing for them having those assets from the standpoint of being a community leader in the PostSQL community is a very important to us we will continue to invest and drive opportunities there and the same for Java DB the also known as Derby. The Java DB, all Java database has been very successful in certain parts of the market and we intend to keep going forward with that.

There’s a last point which is, with regard to Oracle we have spent many years in partnership with Oracle and Oracle isn’t just an application that runs on Sun’s technology. We have hundreds and hundreds of engineers who work closely with that organization to optimize our systems and our platforms and their software to perform at a world class level with regard to running at our joint accounts. We are going to keep investing in that and keep doing that it’s vital to our customers, it’s vital to our business. We can also use that expertise and share that expertise in optimizing MySQL technology to similarly run on Sun Systems as well as Linux and Windows deployments. We have a deep, deep body of knowledge to continue to drive excellence in all these platforms.

Operator

Our next question comes from Katy Huberty from Morgan Stanley.

Katy Huberty – Morgan Stanley

As it relates to the business model going forward should we think about this as Sun launching a stand alone database software business unit or should we look for the MySQL technology to be fully integrated across Sun’s system lineup?

Jonathan Schwartz

That is a great question. Our software business is really un-tethered from and decoupled from our systems business. Rich is building a business that is trying to take on the market as a whole not trying to build a big software business inside our hardware business. Our hardware business is a small fraction of the overall hardware systems marketplace. We want to go after and that’s why we’ve signed OEM relationships with Dell along with IBM and Intel to build our business in those hardware markets.

As with Java, as with GlassFish, as with OpenOffice for that matter we are building a business that stands as broadly as the internet reaches and making sure that we avail ourselves of our ability to cross sell and up sell as well. If we can sell to new customers and certainly the acquisition of MySQL is going to bring an enormous raft of new customers and opportunities to Sun, we’ll be thrilled to do so.

From where I sit this is good for our margins because you may have noticed that when MySQL is put into deployment it’s often surrounded by application infrastructure and identity infrastructure. There’s a 100% attach rate also to a server and a storage device. Databases are used to store information as well as to run analytic and deliver applications. As we build out those businesses it improves the economics of our overall business as well as expands our service line as well as our, frankly our relevance to the customer base.

This is really all about one thing which is reaffirming Sun’s position as the center of the Web. We view ourselves as a platform for the web economy and we certainly believe and can demonstrate that we have some of the hottest products and platforms at the center of some of the most important companies in the world. This will certainly add to that portfolio.

Operator

Our next question comes from [Pashic Tibido] from Computer World.

[Pashic Tibido] – Computer World

To bring this to large scale customer deployments where do you need to take this database? What kind of improvements does it need? What kind of direction is going to be taking it in with this acquisition?

Marten Mickos

That’s an excellent question. If you look at it from an historical perspective we started from a very frugal beginning in the 90’s and we have been upgrading and development the database over all these years. Version 5, which came out two years ago, was our main entry into the enterprise market. That’s why we are already seeing companies like Shinsei Bank deployed, Swedish National Police, Deutch Telecom.

This is a roadmap we’ve had for a long time, that same roadmap that will continue. I think it will be spread out by the fact that we now have better resources, more resources and ability to work closely with Sun on building more performance, more scale and more integration with what is needed in the enterprise. I see that as enforcement of a roadmap we’ve been on for a long time.

It should be noted that this roadmap and how we stand out from most databases is that MySQL was designed and developed for the online network world. All other databases in the market today were designed for back office use in an offline world. We are uniquely designed for that and our relevance grows in enterprises as they shift over to web based architecture which is what is happening right now. It is a major shift among large and small enterprises to web based architecture that causes this enormous growth opportunity for us and our product roadmap is aligned with that?

Rich Green

One of the technical factors that made MySQL even more attractive to Sun is the design center which has to do with the pluggable database technology component. One of the brilliant design changes that they introduced in later releases is the ability to put different database types of behaviors into the offerings for deployment to different customer types. For some markets relational database technology is appropriate and there are modules to support that. Others, different types of database functions that better fit the Telco market or the OEM embedded market are all part of the fundamental structure and product offering that is MySQL. The breadth of markets that can be served through their innovative technology is a critical consideration in this acquisition.

Karen Kahn

We have time for one last question.

Operator

Our last question comes from Matt Lawton with IBC.

Matt Lawton – IBC

You mentioned that the biggest implement to MySQL that you saw before the acquisition was really the piece of mind of customers in putting MySQL into mission critical deployment. I’m wondering if there are any plans to reach out to system integrators, consultants, value added resellers, the partner community basically to educate them on the technologies and really help them provide the implementation services that customers typically require in addition to supported product?

Karen Kahn

Rich I think we’re going to have you take that, Jonathan just gotten called on the CNBC squawk box.

Rich Green

Certainly you are right, the software world is all about partnership and leverage, being able to leverage not only our existing reseller channel, our existing PS in global profession service partners are critical to all this. I think one of the great values is that the MySQL organization brings to Sun is they have built out and are continuing to build out a channel of partners that I’d love Marten to talk to for a moment but it is absolutely a critical part of the plan to continue to grow those relationships. We in no way plan to go it alone in terms of supporting customers and providing that security that you alluded to.

Marten Mickos

I could add here that we always had maybe a unique strategy in the open source world of working very closely with business partners in both the emerging innovative open source and on demand companies but also the giants of the industry like IBM, HP, SAP and others. We saw that the future will need complete infrastructure where we need to work with many different companies. We currently have something like 1,000 partners in our partner network and for them this will be excellent news because it will give them more power behind what they are doing, give them more access to new markets and serve customers because we have among our partners we have value added technologies that we can provide to the customers.

Karen Kahn

Operator if you could end the call.

Operator

This concludes today’s conference call, we appreciate your participation.

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