Abstract: To reduce test data storage volume,this paper proposes a test data compression technique which uses dynamic updating reference slices for IP cores.The proposed technique uses three slices as reference slices.If a scan slice is compatible to one of the reference slices,only two bits or four bits are needed to encode it.Otherwise,the scan slice will replace one reference slice.When a scan slice is compatible to multiple reference slices,a selective compatible merge strategy is proposed to further improve compression ratio.Experimental results show that the proposed technique has higher compression ratio in comparison with relevant compression methods.