AP and The Wall Street Journal report a deal between Intel and Sun Microsystems will be announced as early as today involving Sun's plans to purchase Intel chips for use in its servers, according to a person briefed on the deal. Sun is seen embracing Intel's Xeon processors again, after about a two year period in which Sun opted to exclusively use AMD's Opteron processors given their lower power consumption. Intel reportedly may endorse Sun's Solaris operating system. Bank of America Securities analyst Sumit Dhanda started the rumor of a Sun-Intel partnership last Friday in a research note, basing his prediction on unspecified channel checks. He said Intel could potentially gain 50% of Sun's x86 business, which would result in a $25m to $50m loss of revenues for AMD and lower its annual EPS by about $0.01 to $0.02. Dhanda added that "[W]hile the impact to Intel financials is not meaningful in the near-term, we think the shift away from AMD bodes well for momentum in Intel's server business over the course of the upcoming quarters." Sun will continue to use AMD chips according to sources.
• Sources: NY Times-AP, WSJ, ZDNet-CNET
• Related commentary: Intel Shares Fall on Price War Worries, Intel: You're Either With Them Or Against Them, Sun Microsystems Has a New Sales Approach (And It's Working), IBM, Sun Lead the Pack in Q3 Server Sales
• Potentially impacted stocks and ETFs: Intel (INTC), Sun Microsystems (SUNW), Advanced Micro Devices (AMD). Competitors (server market): Dell (DELL), Hewlett-Packard (HPQ), International Business Machines (IBM). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (PSI), SPDR Semiconductor (XSD), Internet Architecture HOLDRs (IAH), PowerShares Dyn Hardware&Con Electronics (PHW)
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