Arm recently tried to buy Alphawave to strengthen its position in AI

Aiming to improve its AI chip segment, Arm seems to be looking for potential acquisitions in the field. According to Reuters sources, the company has approached Alphawave - unsuccessfully, as it stands.

Arm Holdings, the British chip technology provider majority-owned by Japanese group SoftBank, recently approached semiconductor IP specialist Alphawave with a view to acquiring it, according to three sources close to the matter. The move was aimed at getting its hands on technology essential to the development of its own artificial intelligence processors.

One of the sources told Reuters that Alphawave had begun strategic discussions with its investment banks about a possible divestment, after attracting interest from Arm and other potential buyers. However, according to two other sources, Arm decided not to pursue discussions after these initial exchanges.

The target of this attempt was a technology called serdes, a contraction of serializer-deserializer, which optimizes the speed at which data transits to and from a chip. This component is all the more crucial in the context of AI, where thousands of chips need to operate in a coordinated fashion, as is the case with ChatGPT chatbots.

SerDes technology represents a significant competitive advantage for Broadcom, which has used it as a lever to win over customers such as Google (Alphabet) and OpenAI. Marvell Technology and Nvidia have also invested in this strategic niche, the latter even mentioning its desire to license its own SerDes as part of its new custom chip design business.

Following the release of these revelations, Alphawave's share price jumped 21%, recording its biggest gain since September 2021. The stock closed at
93.5 pence on Monday, valuing the company at around £707m, or almost $914m.

Alphawave is also involved in a joint venture in China, WiseWave, with investment company Wise Road Capital, which has been blacklisted by US authorities due to national security concerns. Arm's ties with China had already complicated its IPO in 2023, as Reuters reported at the time.

Based in the UK, Arm, which is 90%-owned by SoftBank, does not manufacture chips as such: instead, it sells the fundamental technological building blocks, licenses and intellectual property to other designers. Revenues are generated both through licenses and royalties on each chip sold.

To boost its profitability, Arm is exploring various levers, including the possibility of designing and marketing its own chips, a move that would mark a strategic departure from its traditional model, and could potentially put it in competition with its current customers.

Evidence uncovered in a civil lawsuit against Qualcomm last December revealed internal discussions about these plans. However, CEO René Haas put these ambitions into perspective, describing them as mere long-term strategic speculation.

At the same time, Arm has stepped up its recruitment efforts to build a team that is capable of carrying out this new in-house chip project, according to a Reuters survey published in February.

SerDes technology therefore appears to be a missing piece for Arm, which currently lacks a level of expertise as advanced as that of Alphawave. According to industry experts, developing such a technology in-house would require around two years' work and very specific skills, an investment in time and resources that the company now seems to be weighing up carefully.

According to Bernstein, the market for customized chips could reach up to $60bn by 2028. Furthermore, ARM aims to raise its share of the global AI market by the end of the year, compared with just 15% today.