Sun Microsystems, the US computer company, and Advanced Micro Devices, the world’s second-largest chipmaker, on Monday announced a strategic alliance they hope will enable the two struggling Silicon Valley companies to take on their larger, more entrenched rivals.

Sun, which is struggling to compete with rivals that make cheaper computers with Intel microprocessors, said it would begin selling servers using a new AMD chip called Opteron. The two companies also said they would collaborate in other ways.

Scott McNealy, Sun’s chief executive, said the alliance furthers the company’s strategy of providing customers with more choice and performance. Declining revenues have forced Sun to start offering new industry-standard servers in addition to its more expensive systems based on its proprietary Sparc chip and Solaris operating system.

Opteron would offer Sun a cheaper replacement for the Intel Xeon microprocessors that it uses in its low-end server systems. With stagnant global server markets, Sun, HP and IBM are battling for market share and price is their chief weapon.

IBM offers an Opteron server but its focus has been on pushing its Power microprocessor technology. HP, on the other hand, has tied its fortunes to Intel’s Itanium 64 bit microprocessor, which is slower than Opteron in running the mainstream 32-bit software.

“It’s a very risky move for Sun,” said Peter Kastner, chief researcher at the Aberdeen Group consultancy.

“Sun makes a lot of its money selling expensive Sparc microprocessor-based machines in an increasingly commoditised world. The alliance implies the company will have to get along with a lot less revenue,” Mr Kastner said.

For AMD, the deal provides an important ally that could help it win additional customers for Opteron. If Sun’s low-end Opteron-based systems begin to gain market share, it could pressure Dell and Hewlett-Packard to offer similar systems.

For Dell, this would represent a massive departure from its strategy of only offering systems based on Intel microprocessors.

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.


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