The company’s services margins are volume sensitive, and the firm also delivered a modest improvement in year-over-year service gross margins in Q3.

Currency continues to provide a positive impact to the firm’s EMEA and APAC-based revenues as the US dollar continues to weaken.

The company’s results include some benefit from exchange rate movements in both the revenue and gross margin line, as in the past, such benefits are largely offset by the negative impact of such currency movements on operating expenses, as local currency-based expenses are converted to US dollars.

The firm also continues to make progress towards another longer-term goal, that of a more durable and predictable business model.

A decreasing amount of deferred revenue is the proxy for that goal, as it provides a stable base for future quarter''s results. In Q3, deferred products revenue increased by approximately 28% on a year-over-year basis, this primarily reflects the timing of installation and/or acceptance of a broader set of products, which often has an ancillary benefit in terms of additional professional services.

The firm’s deferred service revenue was down 1% on a year-over-year basis in Q3. This is one area in which this system conversion did have a nominal impact on the balance sheet. Due to the timing of receipt of a number of purchase orders late in the quarter, the company was able to process only a portion of the service contract for these customers. The firm was able to record the appropriate amount of revenue for the quarter, but was unable to record the entire value of such contracts which would have been deferred revenue. The firm expects that these contracts will be fully processed in Q4. The amount of unbilled and deferred revenue associated with these contracts at the end of Q3 was not significant.

Total R&D and SG&A expenses were $1.446 billion, a decrease of $25 million year-over-year.

This is due to continued savings from real estate consolidations, reduction of certain incentive payments and a variety of other factors.

The headcount is up approximately 1100 sequentially.

The firm added approximately 600 people from the acquisitions of MySQL, Innotek, and Vaau and the firm believes that it has opportunity to grow revenues in a number of emerging markets and accordingly has added approximately 300 people in its global sales organization. Additional headcount was added in engineering and IT. The firm will continue to hire in areas where there are near-term growth opportunities as well as where it can find and when it can find key engineering skills.

- In the third quarter of fiscal 2008, the firm recorded $52 million tax provision.
- The firm ended the quarter with cash and marketable debt securities balance of $3.801 billion and generated positive cash flow from operations of $329 million.
- During Q3, the firm repurchased 17.5 million shares of its common stock, which equates to $300 million. Shares were repurchased at an average price of $17.15 where currently $500 million remaining of $3 billion share repurchase program announced in Q4 2007.
- During Q3, adjusted EBITDA was $230 million or 7% of revenue, an increase of 7.5% on a year-over-year basis.

The firm signed a landmark collaboration agreement with the People’s Republic of China, Ministry of Education to cultivate integrated circuit engineering talent and industry development based upon its OpenSPARC, open source silicon platform.

This endorsement will introduce a generation of Chinese students to sign in the firm’s innovation while providing China with the foundations of its own indigenous microelectronics capabilities.

The company announced an award from the Defense Advanced Research Projects Agency known as DARPA for research focused on microchip interconnectivity via on-chip optical networks enabled by Silicon photonics and proximity communication.

This work will create more opportunity and differentiation for Sun in the construction of very high capability and productivity data center facilities.

Sun Microsystems announced the closing of two critically important acquisitions, furthering its presence in the open source software marketplace.

The first was Innotek whose VirtualBox products provide free desktop virtualization, especially to developers with multiple run time operating environment on their laptops and then MySQL the world''s most popular open source database. Integration of these acquisitions continues to go well. With MySQL in particular, the firm found enormous receptivity to the technology and value proposition from among a broad spectrum of its customers who are already signing Sun Services agreements. A sampling of these customers ranging from Web 2.0 startups to large enterprises companies include: Thomson Reuters, Glasses Direct, Newforma and TimeLogic.

The impact of the MySQL acquisition, which was closed in late February, on the results of the quarter reflects on the revenues and operating expenses of that business as well as a one-time charge for in-process R&D of approximately $22 million, as well as one-month amortization of certain acquired intangible assets. In short, the overall impact of this acquisition on Q3 income statement was a decrease of approximately $30 million to $35 million of net income or approximately 4 cents per share. In Q4, the impact of MySQL is currently estimated to be in the same overall range as in Q3. This will reflect a near-term full quarter impact of the standalone business and ongoing amortization.

Fourth Quarter Outlook

In Q4, the firm intends to take a restructuring charge of between $130 million and $220 million. The actions include a reduction in force of approximately 1500 to 2500 people. The firm expects that this will result in a more efficient coverage model with resources aligned to growth opportunities, as well as a more focused and effective demand creation capability. The firm expects that this restructuring will lower its annual operating expenses by approximately $100 million to $150 million on an annual basis. The firm expects the majority of this run rate benefit will be reflected in its income statement by Q2 next fiscal year.