Intel 2008 Annual Report Download - page 37

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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Non
-marketable equity investments are inherently risky, and a number of the companies in which we invest are likely to fail.
Their success is dependent on product development, market acceptance, operational efficiency, and other key business factors.
Depending on their future prospects, the companies may not be able to raise additional funds when needed or they may receive
lower valuations, with less favorable investment terms than in previous financings, and our investments would likely become
impaired. Additionally, the current financial markets are extremely volatile and there has been a tightening of the credit
markets, which could negatively affect the prospects of the companies we invest in, their ability to raise additional capital, and
the likelihood of our being able to realize value in our investments through liquidity events such as initial public offerings,
mergers, and private sales. For further information about our investment portfolio risks, including those specific to our
investments in the flash memory market segment and wireless connectivity market segment, see “Risk Factors” in Part I,
Item 1A of this Form 10-K.
We review our investments quarterly for indicators of impairment; however, for non-marketable equity investments, the
impairment analysis requires significant judgment to identify events or circumstances that would significantly harm the fair
value of the investment. The indicators that we use to identify those events or circumstances primarily include:
Investments that we identify as having an indicator of impairment are subject to further analysis to determine if the fair value
of the investment is below our carrying value. If the fair value of the investment is below our carrying value, we determine if
the investment is other than temporarily impaired based on the severity and duration of the impairment. If the investment is
considered to be other than temporarily impaired, we write down the investment to its fair value. Beginning in the first quarter
of 2008, the assessment of fair value for non-marketable investments is based on the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157), as amended. With the exception of
Clearwire LLC, we classified our impaired non-marketable investments as Level 3, as we use unobservable inputs to the
valuation methodology that are significant to the fair value measurement, and the valuation requires management judgment
due to the absence of quoted market prices and inherent lack of liquidity. We classified our investment in Clearwire LLC as
Level 2, as the unobservable inputs to the valuation methodology were not significant to the fair value measurement. See
“Note 3: Fair Value” in Part II, Item 8 of this Form 10-K.
Impairments of non-marketable equity investments were $1.2 billion in 2008. Over the past 12 quarters, including the fourth
quarter of 2008, impairments of non-marketable equity investments have ranged from $10 million to $896 million per quarter.
The following is a discussion of the methods, estimates, and judgments that management uses in our analysis to determine if
our non-marketable equity investments are other than temporarily impaired.
IMFT/IMFS
IMFT and IMFS are variable interest entities that are designed to manufacture and sell NAND products to Intel and Micron at
manufacturing cost. Our NAND Solutions Group operating segment purchases 49% of these NAND products from IMFT and
sells them to our customers. As a result, we generate cash flows from our investments in IMFT, IMFS, and our intangible
assets related to the NAND product designs through our NAND Solutions Group business. Therefore, we determine the fair
value of our investments in IMFT and IMFS using the income approach, based on a weighted average of multiple discounted
cash flow scenarios of our NAND Solutions Group business.
32
•
the investee
’
s revenue and earnings trends relative to predefined milestones and overall business prospects;
•
the technological feasibility of the investee
’
s products and technologies;
• the general market conditions in the investee’s industry or geographic area, including adverse regulatory or economic
changes;
• factors related to the investee’s ability to remain in business, such as the investee’
s liquidity, debt ratios, and the rate at
which the investee is using its cash; and
•
the investee
’
s receipt of additional funding at a lower valuation.