Adaptec 2002 Annual Report Download - page 65

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These forecasted cash flows were then discounted based on rates derived from the Company's weighted average
cost of capital, weighted average return on assets and venture capital rates of return adjusted upward to
reflect additional risks inherent in the development life cycle. The risk adjusted discount rate used
involved consideration of the characteristics and applications of each product, the inherent uncertainties
in achieving technological feasibility, anticipated levels of market acceptance and penetration, market
growth rates and risks related to the impact of potential changes in future target markets.
Based on this analysis, the acquired technology that had reached technological feasibility was capitalized.
Acquired technology that had not yet reached technological feasibility and for which no alternative future
uses existed was expensed upon acquisition.
Malleable and Datum:
Malleable developed programmable integrated circuits that perform high−density Voice Over Packet
applications. The in process technology acquired from Malleable was designed to detect incoming voice
channels and process them using voice compression algorithms. The compressed voice was converted, using the
appropriate protocols, to ATM cells or IP packets to achieve higher channel density and to support multiple
speech compression protocols and different packetization requirements. At the date of acquisition the
Company estimated that Malleable's technology was 58% complete and the costs to complete the project to be
$4.4 million.
Datum designed power amplifiers for use in wireless communications network equipment. The technology
acquired from Datum was a digitally controlled amplifier architecture, which was designed to increase base
station system capacities, while reducing cost, size and power consumption of radio networks. At the date of
acquisition, the Company estimated that Datum's technology was 59% complete and the costs to complete the
project to be $1.8 million.
These estimates were determined by comparing the time and costs spent to date and the complexity of the
technologies achieved to date to the total costs, time and complexities that PMC expected to expend to bring
the technologies to completion.
The amounts allocated to IPR&D for Malleable and Datum of $31.5 million and $6.7 million, respectively, were
expensed upon acquisition, as it was determined that the underlying projects had not reached technological
feasibility, had no alternative future uses and successful development was uncertain. The risk−adjusted
discount rates used to determine the value of IPR&D for Malleable was 35% and for Datum was 30%.
The Company discontinued development of the technology acquired from Malleable
in the second quarter of 2001. See Note 3 "Restructuring and other costs".
Development of the chip incorporating the technology acquired from Datum was completed in the fourth quarter
of 2000 and the costs incurred to that date were in line with the Company's initial expectations. Since
then, the Company has completed the required firmware related to this chip and has extended development of
the Datum technology to a follow−on product. The general economic slowdown has delayed the introduction of
the third generation base stations into which the Company had expected the Datum technology to be
incorporated. It is currently uncertain when the Datum products will begin to generate significant revenues.
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