With the demand for computing power exploding among the distributors of media rich Internet content, some analysts believe Sun (Nasdaq: SUNW) is poised for a rebound in demand following five years in the wilderness.

The Mountain-View, Calif.-based technology company has enacted a number of initiatives in the past five years, helping it slowly move back to profitability after the dot-com bust in 2001.

The most notable development, one analyst contends, its UltraSPARC T1 processor, with an architecture fit for tomorrow’s Web 2.0 Internet.

What distinguishes the T1 from competitive offerings, Needham's research analyst, Charlie Wolf, contends, is that each of the chip’s 8 cores contains four instruction sequences, or threads.

The design allows advanced operating systems to see 32 processors in all, he explains, making it perfect to power Internet servers, where multi-tasking is essential.

More importantly, the chips are the first designed from the ground up specifically for Internet workloads and for running current and next-generation web, application and distributed database systems.

Multimedia delivered on top of broadband Internet - such as Google's YouTube video service - will continue to gain ground, and the companies that serve this content need to build large, mega-scale infrastructures.

The T1 appears to align Sun perfectly with the needs of mega-scale computing companies whose mission is to deliver content, which is beginning to rapidly migrate from text to video, Wolf says. These companies are likely to turn to suppliers who can provide sophisticated systems at competitive prices rather than companies focused simply on the assembly of generic boxes.

Sun's processor consumes less energy than competing chips. The chip consumes just 72 watts of power, much less than Intel’s Xeon processor, which consumes from 110 to 165 watts, making it ideal in large-scale applications.

The company is already investing in the T1's successor, with management already announcing its Victoria Falls chip scheduled to begin manufacturing in October of 2008. The new chip will be a 16 core, 128 thread processor.

Despite the outlook, however, Needham retained its hold valuation for the technology firm, contending that Sun is already fairly valued at its current level.

To trigger an upgrade, we would have to make more aggressive assumptions regarding Sun’s revenue growth and operating margin, Wolf concluded.

Sun rose 1.43 percent on Tuesday, gaining 9 cents to close at $6.38 in Tuesday trading on the Nasdaq Stock Market.