NEW YORK/SAN FRANCISCO/LONDON (Reuters) -SoftBank-owned chip tech provider Arm Holdings recently sought to acquire UK-based Alphawave to secure a crucial technology for building its own artificial-intelligence processors, according to three sources familiar with the matter.

Alphawave, a supplier of semiconductor intellectual property, has been working with its investment bankers to explore a sale after receiving acquisition interest from Arm and other potential acquirers, one of the sources told Reuters.

Arm, however, has decided not to pursue a takeover of Alphawave after its initial discussions with the company, two of the sources said.

Arm approached Alphawave recently with the aim of acquiring its technology that determines how fast information can get onto and off a chip, which is crucial for AI because chatbots such as ChatGPT and other applications can require thousands of chips strung together at once to operate smoothly. 

Known as "serdes" - short for serializer-deserializer - the tech is one of the competitive advantages Broadcom boasts, which has helped it win AI chip customers such as Alphabet's Google and OpenAI.

SoftBank and Arm declined to comment. Alphawave declined to comment

Alphawave share jumped 21% on the news, the biggest gain since September 2021. The shares closed at 93.5 pence on Monday, valuing the company at about 707 million pounds ($914 million).

Alphawave has a joint venture in China called WiseWave that it operates with the Chinese investment firm Wise Road Capital, which American officials placed on a U.S. blacklist due to national security concerns last year. Arm's ties to China served to complicate its public listing in 2023, Reuters reported at the time. 

BIG BET ON SERDES

UK-headquartered Arm, which is 90% owned by Japan's SoftBank Group, does not make chips itself but sells the fundamental building blocks and other intellectual property. It generates revenue by billing companies for a license to use its tech and collects royalty payments for each chip sold.

Through a range of tactics Arm has sought to improve its profit margin and expand revenue. These include exploring the idea of designing and selling a chip of its own, signaling a departure from its business of licensing intellectual property to other chip design firms and the possibility of competing directly with Arm's customers.

Executives disclosed specifics about the company's fresh approach to its future plans during a December trial in a civil lawsuit over a contract with Qualcomm.

The plans disclosed during the trial included internal messages and documents that discussed the introduction of its own chip, though Chief Executive Rene Haas downplayed the comments. He said they reflected long-term strategic spitballing, in which executives often engage. 

In addition to the details revealed during the trial, Arm has also made a recruiting effort to identify and hire talent capable of launching a chip designed by the company, Reuters reported in February.

Arm does not have SerDes technology - short for serializer/deserializer, which converts parallel data to serial data and vice versa for high-speed communication - as advanced as what Alphawave has built. Though little known, this technology serves as the foundation for Broadcom and Marvell Technology's multibillion-dollar bespoke chip businesses, a market projected to grow to as much as $60 billion by 2028, according to a recent Bernstein report from Mark Li.

Nvidia has also developed SerDes technology and has indicated it is willing to license it to other companies as part of the custom chip business it launched.

Building powerful SerDes technology is crucial to making an AI chip that could stand out from rivals. Building SerDes from scratch requires a specific set of expertise and roughly two years to create, according to chip industry insiders.

($1 = 0.7742 pound)