Sun Microsystems aims new chip at new markets

SAN FRANCISCO Mon Aug 6, 2007 7:43pm EDT

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SAN FRANCISCO (Reuters) - Silicon Valley computer maker Sun Microsystems Inc is rolling out what it calls the world's fastest commodity microprocessor in hopes that it would launch a new business: selling the chips to makers of set-top boxes, routers and other technology gear.

On Tuesday Sun is unveiling its UltraSparc T2 chip, also known by the code name Niagara 2. It follows the Niagara 1 chip and is far more powerful, capable of executing 64 threads -- or sequences of instructions -- at once, whereas many competing chips handle only one to four threads at one time.

While the Niagara chips will be used in Sun's computer servers -- which are popular in the financial services, telecommunications and government industries -- the company is positioning the chip at markets beyond just servers.

"Sun is entering the merchant silicon business and by that we're going to be chasing the commodity volume markets which are not simply limited to the market place for server computers," said Sun Chief Executive Jonathan Schwartz in an interview.

Sun competes chiefly with Hewlett-Packard Co and International Business Machines Corp in the market for server computers that use the Unix operating system. The three computer makers together have about 90 percent of the Unix server market.

The introduction of Sun's UltraSparc T2 comes after IBM of Armonk, New York, recently launched its Power6 processor. Scott Handy, an IBM vice president of marketing and strategy, said he believes that Sun's latest chip will only find a home in "niche" markets such as Web hosting.

Analysts praised the chip, noting that it set records in a number of benchmarks used in the information technology industry to measure how quickly computers and chips can perform calculations.

"This is rarefied territory for Sun to be able to claim leadership on these benchmarks," said Insight64 analyst Nathan Brookwood. "It (the new chip) is just what IT managers need if they are facing the problems of increasing workloads and increasing power and limited power and cooling resources."

Santa Clara, California-based Sun last week swung to a fourth-quarter profit from a year-earlier loss. The company's operating profit margin reached 8.5 percent, topping its earlier goal of at least 4 percent. Sun returned to a profit in the second and third quarters after five straight losses.

"They've got some products now that are available or will be shortly (with the new UltraSparc T2 chip), but can they continue ramping this up into a bigger business?" said IDC analyst Jean Bozman. "Sun's ambitions are bigger than the server replacement market."

Sun in March set up its microelectronics business as a stand-alone group that will design chips for its own computers as well as for the new markets it aims to enter. The UltraSparc 2 is the first major chip to roll out since that unit was established.

While Sun designs its own microprocessors, chipmaker Texas Instruments Inc manufactures the microchips for Sun.

However, some analysts said that convincing makers of cars, data networking gear and set-top boxes to use Sun's Niagara 2 chip instead of those made by, for example, Intel Corp, could be a daunting undertaking.

"I love the chip but I think that the success of this chip lies in the systems that Sun will wrap around it and maybe one or two third parties in niche markets rather than this being a high-volume commodity chip," Brookwood said. "I just don't see that."

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