British Imagination Technologies' plan to offer $60 million for the operating business of MIPS Technologies faces competition.
MIPS has received a higher bid from a rival firm, mobile chip designer CEVA, which has made a $75 million bid.
MIPS said that it is now talking to CEVA because, at the moment, it is offering a better deal.
Imagination has not given up yet, although it says that it is monitoring the situation and will provide a further update in due course. Imagination announced its intention to buy MIPS earlier in November, which would mean that it would have something to help it take on fellow British company ARM.
MIPS technology is in Blu-ray players, digital televisions and video games consoles such as thePlayStation 2.
However, it is in the long term that MIPS will prove more valuable. The technology is under the bonnet of the home grown range of chips being made by the Chinese government. These are nearly at the point of matching Intel chips on the desktop and the smart money says they will take over China in the long term. When that happens, MIPS will be incredibly valuable.