What just happened? Arm is reportedly exploring a potential acquisition of Ampere Computing, a semiconductor startup specializing in high-performance processors for data centers. However, the discussions remain private and preliminary, with no guarantee of a finalized deal.

Details, attributed to anonymous sources who spoke with Bloomberg, are scarce – it is uncertain whether Arm will proceed with a full acquisition or pursue another form of collaboration with Ampere. Both companies are weighing their options as they navigate a complex and competitive landscape. It is possible, for example, that Ampere could attract other suitors.

Ampere, based in Santa Clara, California, designs semiconductors using Arm’s architecture and has garnered attention for its energy-efficient chips tailored to cloud-native workloads. Backed by Oracle, which owns a 29% stake in the company, Ampere was valued at $8 billion during a proposed minority investment by SoftBank in 2021, but the current valuation under discussion between SoftBank, Arm, and Ampere remains unclear.

Representatives for Arm and Ampere declined to comment on the matter, while spokespeople for SoftBank and Oracle did not immediately respond to inquiries.

The potential acquisition comes at a pivotal time for the semiconductor industry, which is experiencing a surge in demand fueled by AI applications. Ampere has been working with financial advisers to explore takeover interest as it faces challenges in pursuing an initial public offering. In April 2022, the company announced that it had confidentially filed for a US IPO amid strong demand for chips, but growing competition and shifting market dynamics prompted Ampere to consider alternative strategies.

Ampere’s flagship products, including the Altra and Altra Max processors, have gained traction among cloud service providers for their performance-per-watt efficiency and scalability. These CPUs offer an alternative to traditional x86 chips from Intel and AMD.

As the data center industry adapts to the AI era, interest in controlling key components like processors is growing. Ampere faces stiff competition from larger players and must contend with a market shift toward AI accelerator chips produced by companies like Nvidia.

For Arm, acquiring Ampere could represent a significant step in its strategy to expand beyond its traditional role as a licensor of chip designs into becoming a more comprehensive chipmaker. Under CEO Rene Haas, Arm has been pushing into the data center market – a segment historically dominated by x86 architecture – and Ampere’s expertise could bolster this effort. Many of Ampere’s engineers previously worked at Intel’s server chip division, bringing valuable experience to the table.

While the potential deal offers strategic advantages for both companies, it also raises questions about regulatory scrutiny and competitive pressures. Arm’s neutral position as a licensor of its technology to various companies could be complicated by an acquisition of Ampere, potentially creating conflicts of interest with other firms in its ecosystem that compete in the server space. Additionally, given Arm’s recent IPO and its ambitions for growth under SoftBank’s ownership, any acquisition would likely face heightened regulatory oversight.

Oracle’s involvement further complicates the picture. The tech giant has options to increase its stake in Ampere and potentially gain control of the company. This dynamic could influence negotiations between Ampere and any potential acquirers.

The semiconductor industry has seen a wave of consolidation in recent years as companies seek to capitalize on booming demand for AI-related technologies. Global deals involving chipmakers more than doubled last year to exceed $31 billion, according to Bloomberg data.