Sun Microsystems and Intel, often bitter rivals in the microprocessor industry, yesterday announced a "landmark alliance" in which Intel's chips would power a Sun server product line.

Jonathan Schwartz, Sun chief executive, and Paul Otellini, his Intel counterpart, announced the news at a joint press conference in San Francisco.

It was a blow to Advanced Micro Devices (AMD), Intel's processor rival, which has kept Intel's chips out of Sun's servers for several years.

The move by Sun signalled that Intel was regaining a technological edge it had lost to AMD, along with market share, in the server segment of the industry.

News of the move by Sun first emerged in a report by Sumit Dhanda, Bank of America semiconductor analyst, last Friday.

He said checks with customers had revealed Sun would begin using Intel's Xeon processors in the most common "x86" servers. It uses its own processor in more high-end servers and workstations. Sun is rated sixth in market share in this segment.

Mr Dhanda said Sun had used AMD's Opteron processors exclusively over the past few years because they had used less power than Intel's Xeon.

"Now that Intel's new Xeon processors are boasting better performance/power consumption versus AMD's Opteron [based on third party benchmarks], we believe that Sun, among many other server vendors, is exploring use of Intel processors in its x86 server line," he wrote.

Regaining Sun as a customer is Intel's biggest win since it persuaded Apple to switch to its processors in 2005. Intel last week beat market forecasts when it announced it had delivered revenues at the top end of its expectations in the fourth quarter.

In contrast, AMD issued a profits and revenue warning earlier this month, blaming lower average selling prices. It releases its fourth-quarter figures after the markets close today.