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Rackable Rockets on Sun Rumor

Rackable Systems (RACK) shares shot up Thursday as the server maker became the latest company to get swept up in a frenzy of speculation about acquisitions in the tech sector.

While none of the tech buyout rumors has borne out so far, investors cottoned to the newest chatter and sent Rackable shares up more than 11%, or $1.82, at $18.28 in trading.

Earlier this week, investors ran up shares of Palm (PALM) and Gateway (GTW) in hopes that the companies would be acquired. Both stocks have since given back the gains, as the prospects of the rumored deals appeared less likely.

Rackable's putative suitor is Sun Microsystems (SUNW).

"There's a rumor around -- strictly a rumor -- that Sun is going to buy them," says Chirag Vasavada, a hardware analyst with T. Rowe Price.

Rackable has been a subject of buyout rumors in the past, although Dell (DELL - Get Report) has usually been the rumored acquirer, notes Vasavada. "Sun is a little bit of a new name thrown into the discussion," says Vasavada, whose firm is long Rackable.

Milpitas, Calif.-based Rackable sells servers based on industry standard x86 microprocessors made by Intel (INTC - Get Report) and Advanced Micro Devices (AMD - Get Report).

The company's focus on customizing its machines so that they consume less energy and can be packed closer together in corporate data centers has won it some key customers.

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