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Sun Reverses Course, Settles With Microsoft

Sun Microsystems reversed course Friday, reaching a sweeping agreement under which longtime rival Microsoft will pay it nearly $2 billion to settle longstanding litigation and the companies will collaborate on future technology.

Sun also said it expects to post losses of as much as $810 million in its just-completed third quarter, and plans to cut 3,300 jobs, about 9% of its workforce of more than 35,000. In addition, the struggling vendor named Jonathan Schwartz as president and chief operating officer.

Under the settlement, Microsoft will pay Sun $700 million to resolve antitrust issues and $900 million to resolve patent issues. In addition, the companies will pay royalties for use of each other's technology, with Microsoft making an up-front payment of $350 million. Sun is expected to make royalty payments to Microsoft when Microsoft technology is incorporated into its server products.

"This agreement launches a new relationship between Sun and Microsoft, a significant step forward that allows for cooperation while preserving customer choice," Sun chairman and CEO Scott McNealy said in a statement.

"Our companies will continue to compete hard, but this agreement creates a new basis for cooperation that will benefit the customers of both companies," said Steve Ballmer, CEO of Microsoft, in a statement.

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