Terms of the deal were not disclosed.
Sun's Microelectronics division will acquire Diba's technology, engineering, products, and brands, as well as all of Diba's 79 employees.
Diba will be renamed the Consumer Technologies Group, within Sun's Microelectronics division. The division will work with consumer electronics companies to provide Internet-ready TVs, set-top boxes, satellite boxes, and smart phones, according to Sun.
Diba founders Farzad and Farid Dibachi will report to Microelectronics division president Chet Silvestri, the company said.
The move may pose a challenge to Microsoft, whose acquisition of set-top box maker WebTV Networks is currently pending. (EDITOR'S NOTE: The Justice Department on August 1 approved the deal.)
In a conference call this morning, Diba and Sun officials denied that the acquisition was a calculated move against Microsoft. Farzad Dibachi claimed that conversations between Diba and Sun began prior to discussions between Microsoft and WebTV.
However, officials at both Sun and Diba touted the superiority of their set-top box plan to the one expected from Microsoft and WebTV, citing Sun's commitment to an open and Java-based architecture.
"We're not going to have any problem with Microsoft," said Sun president Silvestri. "Microsoft is going after the server, client, content--the whole nine yards. The difference between us and them is we're providing enabling technology."
Officials with both companies described the deal as mutually beneficial. "If we hadn't acquired Diba we would have had to figure out how to do this ourselves, either through research and development or by working with others in the industry," said Silvestri.
Sun would not comment on whether it had approached other set-top box makers. But Diba said it hadn't shopped its wares to any company but Sun.
"We need Sun as a big brother to provide resources, means of distribution, and to preach our sermon to the world," said Farzad Dibachi. "We've got the best technology, the best philosophy catering to openness, and that's what the Internet is all about," he added.