Sun Niagara 2 chip unveiled

With this move, Sun will be competing with partners Intel and Advanced Micro Devices, whose chips Sun also uses in its lower-cost servers. Servers are computers that process online transactions, host Web sites and run companies.

In a phone interview, Sun Chief Executive Jonathan Schwartz explained the new venture.

"We are too big to have anyone be just an ally or a competitor," he said. "We partner with Microsoft, we partner with IBM and we also compete with IBM and Microsoft."

In March, Sun created the new unit to develop and sell chips to other companies, as well as for its own use. Schwartz said Sun's new chip, officially called UltraSPARC T2, and this new business are key to the company's growth. Just last week, Sun reported a better-than-expected fourth quarter profit, as it has struggled to return to consistent profitability since the dot-com bust.

Sun's new business has other new chips planned for later this year and next year, including an anticipated high-performance chip, code-named Rock, designed for servers running mainframe-like transactions for banks and scientific problems handled by supercomputers. Next year, Sun hopes to woo HP with its Rock chip, unseating Intel's Itanium in HP's biggest and costliest systems.

"I'm certainly hopeful," said David Yen, executive vice president of Sun's microelectronics group. "We hope in the not-too-distant future, their customers will pressure them to dump Itanium."