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Sun, Intel CEOs Plan Other Projects Beyond Chip Deal: CNBC

Sun Microsystems tapped semiconductor maker Intel to supply it with chips for servers and workstations, and the chief executive officers of both companies told CNBC they'll work together to develop future products and promote one another's technology.

Santa Clara, Calif.-based Sun Microsystems said it will use Intel's Xeon chips to power its servers. The deal is viewed as a blow to Advanced Micro Devices, previously the exclusive chip supplier for Sun, which will now utilize chips made by both companies.

Sun Microsystems CEO Jonathan Schwartz and Intel CEO Paul Otellini, interviewed together on CNBC's "Power Lunch" just prior to the news release, noted that the deal includes a developmental alliance for future products.

"It really is, for Sun, an opportunity to grow the market and expand the opportunity out in front of us," Schwartz said.

"We want to grow the market as much as we possibly can. AMD certainly has a very prominent role in the marketplace, but they aren't the volume leader and Intel certainly is."

The companies said they will "strongly encourage" independent software vendors to expand their offerings for Solaris, Sun's operating system, on Intel-based systems," according to a release.

"We’re very excited about being able to win some business at Sun," Otellini said. "I think the most important thing though, for us, is really the ability for us to do joint innovation."

Sun has exclusively used AMD's Opteron chips in its servers over the past two to three years, because of what until recently had been AMD's power and performance advantage over Intel, analysts said. Servers are the workhorses of computing environments and carry far higher profit margins than do personal computers.

With the announcement, Sun joins the three other large U.S. computer makers -- Dell , Hewlett-Packard and IBM -- in selling computers that use both AMD and Intel chips.

"This would mark an almost final stage in terms of end users being able to buy servers with either Intel or AMD chips from every important supplier," said Nathan Brookwood, president of Silicon Valley consulting firm Insight64.

Dell, which until recently used only Intel chips, is now selling computers based on AMD's microprocessors, which are computers' central processing engines.

On Friday, Bank of America Equity Research analyst Sumit Dhanda predicted in a note to clients that Sun would start using Intel chips in servers that would be available to customers in late 2007.

"Development is currently taking place at the engineering level, with expectations for volume production sometime in late 2007," Dhanda wrote.

Although Sun is not as big a seller of computer servers now as it was in the late 1990s, its move to start using Intel chips is a shot in the arm to chip maker, which has stumbled over the past several years.

"Intel has come back and has a very credible roadmap and product line and customers are asking for it," Brookwood said.

It's the biggest customer win for Intel, the company said, since Apple opted in 2005 to switch to Intel chips from those made by IBM. Apple and Sun Microsystems have both taken digs at Intel over the years because of what the two companies once said was lagging technology on Intel's part.

Sun Chairman Scott McNealy has referred to an Intel chip called Itanium as "Itanic," after the chip did not take off in the server market as well as Intel and its development partner, HP, had hoped.

McNealy tapped protege Jonathan Schwartz in April 2006 to succeed him as chief executive at Sun.

Since Schwartz took the reins at Sun, the company has tried to boost financial results by more aggressively pushing its Solaris operating system and working to offer customers more flexibility in mixing and matching software, services and hardware.

"Although Sun is fairly small player in the x86 server market (No. 6 in market share), it has been one of the fastest growing vendors in this market over the past few quarters," Dhanda wrote.

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