Halting one of the most bitter rivalries in US business, Sun Microsystems Inc gave up its fight with Microsoft Corp and reached a US$1.6 billion legal settlement and pledging to cooperate with its longtime nemesis.

　　The surprise agreement, signed on Friday, ended a protracted legal wrestling match among rivals with plenty of other weighty challenges - Microsoft's antitrust sanctions by the European Union and Sun's staggering financial losses since the dot-com bust.

　　Sun announced on Friday that it is cutting 3,300 jobs, or 9 percent of its 36,000-strong work force, and that its net loss for the fiscal third quarter will be wider than expected.

　　Sun, once a shining star of Silicon Valley, makes servers that tie desktop computers together and serve up Web pages. It has repeatedly accused Microsoft of sabotaging its business, including by making Windows operating systems incompatible with Sun's Java programming language.

　　Sun's antitrust complaints helped spark the investigation that led to the EU's US$613 million fine against Microsoft last month for abuses of its virtual monopoly in desktop operating systems.

　　Because Sun and Microsoft have had a rancorous, acidic relationship - Scott McNealy, Sun's chief executive, used to call Microsoft's software a system-clogging "hairball" - the announcement might have been mistaken for an April Fool's joke if it had come a day earlier.

　　"It puts peace on the table in a big way," McNealy said during a conference call on Friday morning.

　　A few hours later, McNealy and Microsoft chief executive Steve Ballmer sat side by side at a news conference in San Francisco, and explained that the decision to collaborate was based on business.

　　The "broad cooperation agreement" calls for the two companies to make their products compatible - an issue McNealy said had become a growing concern among many of the corporate customers the two companies serve.

　　"It's all about helping our customers who own both our stuff," Ballmer said.

　　McNealy said he initiated the talks almost a year ago. Several golf games and dozens of weekly meetings later, the two rivals hammered out a 10-year deal that ends Sun's US$1 billion antitrust suit against Microsoft.

　　Microsoft will pay Sun US$700 million to resolve the antitrust case, which was scheduled to go to trial in January 2006, and US$900 million to resolve patent issues. Sun and Microsoft also will pay royalties for each others' technologies, with Microsoft making an upfront payment of US$350 million.

　　The move was not related to the EU ruling, Microsoft's top lawyer, Brad Smith, said in an interview. However, he said the company understood Sun's position better after Sun executives testified at a hearing in Europe in November.

　　Matt Rosoff of independent researcher Directions on Microsoft said he was surprised by the settlement.

　　"Sun and Microsoft have been at each other's throats for so many years, and the level of rhetoric between the two companies has been so extreme, I'm surprised they were able to reach an agreement," he said.

　　Santa Clara-based Sun has accused Microsoft of crippling its growth, but its financial troubles stemmed in large part from the dot-com bust, as corporate spending shrunk and rivals like IBM Corp and Hewlett-Packard Co started offering machines with less expensive hardware and software.

　　Inexpensive microprocessors from Intel Corp have grown increasingly powerful, and the open-source Linux operating system has become more reliable. Companies that once powered their Websites and applications on Sun machines can do so just as easily - and a lot less expensively - using an Intel-based box running Linux.

　　(The Associated Press)