Sun close to buying Intel would-be competitor Montalvo

Sun Microsystems is negotiating to buy Montalvo Systems, the super-secretive chip start-up that has concocted a chip for portables, according to sources.

The deal follows a major round of layoffs at Montalvo. We heard the rumor of the layoffs yesterday and subsequently heard the cuts started. The company, which had earlier raised $73 million, has been seeking around $100 million from additional investors. Investors, though, have shied away.

Neither Sun nor Montalvo has confirmed the negotiations or the state of the transaction. Any deal may fade away before anything gets signed. But this is what we know at the moment from well-placed sources.

The company has designed a chip that can run the same software as processors from Intel and Advanced Micro Devices. What makes the chip different is that the four-core chip from Montalvo is asymmetrical. Two of the cores are high-powered cores for running intense applications while two are more energy efficient. Montalvo has submitted several patents on its ideas and some of the applications have recently become public.

Still, competing with Intel is no walk in the park. Many companies have tried and most have failed miserably. The prospect of taking on Intel, particularly at a time when Intel has just released a low-powered chip, is one of the main reasons investors have stayed away. Although Montalvo has designed a chip and has lined up Fujitsu to produce it, it does not yet have a piece of silicon in hand.

It is not clear how Sun will use Montalvo's technology. Sun buys chips from both Intel and AMD and would not likely be interested in making Montalvo's chips and taking on Intel and/or AMD, particularly since Sun doesn't even own its own chip factories. However, Sun does produce UltraSparc chips and tries to use these chips to enhance its high-end servers. The concepts from Montalvo's chips, conceivably, could be transferred to Sun's. More importantly, Sun would get Montalvo's engineering team.