Imagination Technologies risks being gazumped in its $60m (£37.6m) bid to acquire microprocessor designer MIPS Technologies after the board of MIPS opened talks with rival CEVA.
The news follows a significantly higher $75m (£46.9m) bid from CEVA, a designer of digital signal processors, which MIPS said in a statement could represent a "superior transaction".
However, talks are at an early stage and MIPS' management says that discussions will continue with both Imagination and CEVA.
"There can be no assurances that any definitive agreement or transaction will result from the CEVA proposal or MIPS Technologies' discussions with CEVA," the company said in a statement.
MIPS added that Imagination, which announced plans to acquired MIPS, while ARM bought out most of its patent portfolio, earlier this month, is still in the running for the deal.
"The MIPS board of directors continues to recommend the merger agreement with Imagination Technologies to its stockholders," said the company in a statement.
It added: "The MIPS board of directors is not withdrawing its recommendation with respect to the merger agreement and the merger, or proposing to do so, and is not making any recommendation with respect to the CEVA proposal.
"Imagination understands that the MIPS Board of Directors continues to recommend the merger agreement with Imagination to its shareholders. Imagination is monitoring the situation and will provide a further update in due course," said the company in a statement.
The purchase of MIPS by Imagination would make Imagination a direct rival to ARM in the market for fast, low-power-consumption microprocessor intellectual property.
MIPS technology, which was originally designed as a reduced instruction set computing (Risc) microprocessor for servers, has been used in Blu-ray players, high-definition digital televisions and games consoles, such as the Sony PlayStation 2.
However, it has been eclipsed by ARM, which is the world's biggest provider of microprocessing technology to the smartphone and tablet computing market.
In contrast to the $60m-$75m value pinned on MIPS, ARM is valued at about £10bn on the London Stock Exchange.