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Texture compression is an important technique in graphics processing units (GPUs) for saving memory bandwidth. This paper presents a high-quality mipmapping texture compression (MTC) system with alpha maps. Based upon the wavelet transform, a hierarchical approach is adopted for mipmapping textures in the YCbCr color space and alpha channel. By inspecting the similarity between the alpha and luminance channels, the two channels are efficiently encoded together with linear prediction in the differential mode. In addition, the split mode manages textures with no strong relationship between the alpha and luminance channels. A layer overlapping technique is also proposed to reduce the texture memory bandwidth. Simulation results show that MTC can reduce the texture access traffic by 80% to 90% and provides high image quality as well. Compared with DirectX texture compression (DXTC), the most well-known texture compression with alpha maps, MTC reduces the texture access bandwidth by 30% more. VLSI implementation results show that the hardware cost of MTC is similar to that of DXTC and that MTC is suitable for integration in GPUs to provide high-quality textures with low memory bandwidth requirements.