SoftBank-owned chip technology provider Arm Holdings recently sought to acquire UK-based Alphawave to secure a crucial technology for building its artificial intelligence processors, according to sources familiar with the matter.
Alphawave, a supplier of semiconductor intellectual property, has been engaged with investment bankers to explore a sale after garnering acquisition interest from Arm and other potential buyers.
However, Arm has chosen not to pursue a takeover of Alphawave following initial discussions, sources indicated.
Arm approached Alphawave with the intent of acquiring technology that determines the speed at which information can enter and exit a chip, a critical factor for AI applications that require multiple chips operating seamlessly, such as chatbots like ChatGPT.
This technology, known as "serdes" (serializer-deserializer), offers a competitive advantage to Broadcom, enabling it to attract AI chip customers like Alphabet's Google and OpenAI.
Alphawave's shares surged 21% following the news, marking its largest gain since September 2021, with shares closing at 93.5 pence, valuing the company at approximately £707 million ($914 million).
Alphawave operates a joint venture in China called WiseWave with the investment firm Wise Road Capital, which is on a U.S. blacklist due to national security concerns. Arm's connections to China have affected its public listing in 2023.
UK-based Arm, 90% owned by Japan's SoftBank Group, does not manufacture chips directly but provides the essential building blocks and intellectual property for chip design. It earns revenue by licensing its technology to companies and collecting royalty payments on sold chips.
To improve its profit margins and expand revenue, Arm has explored designing and selling its chips, indicating a shift from its traditional licensing model and potential direct competition with its own clients.
Details about Arm's future plans emerged during a December trial in a civil lawsuit concerning a contract with Qualcomm. The trial revealed internal messages discussing the introduction of its own chip, although Chief Executive Rene Haas characterized these discussions as speculative long-term strategizing.
Arm has also been actively recruiting talent to launch its chip designs. Despite lacking advanced SerDes technology comparable to Alphawave's, Arm recognizes the importance of this foundational technology for competing in the burgeoning multibillion-dollar bespoke chip market, expected to grow to $60 billion by 2028, according to a recent Bernstein report.
Nvidia has also developed SerDes technology and is open to licensing it out to other companies as part of its business strategy. Developing robust SerDes technology is essential for creating standout AI chips, which typically require specialized expertise and about two years to develop.