AMD 2008 Annual Report Download - page 62

Electronics segment was approximately $223 million. Starting in the first quarter of 2007, in conjunction with the
integration of ATI’s operations, we began reporting operations related to its chipset products in our Computing
Solutions segment.
The value assigned to IPR&D was determined using a discounted cash flow methodology, specifically an
excess earnings approach, which estimates value based upon the discounted value of future cash flows expected
to be generated by the in-process projects, net of all contributory asset returns. The approach includes
consideration of the importance of each project to the overall development plan and estimating costs to develop
the purchased IPR&D into commercially viable products. The revenue estimates used to value the purchased
IPR&D were based on estimates of the relevant market sizes and growth factors, expected trends in technology
and the nature and expected timing of new product introductions by ATI and its competitors.
The discount rates applied to individual projects were selected after consideration of the overall estimated
weighted average cost of capital for ATI and the discount rates applied to the valuation of the other assets
acquired. Such weighted average cost of capital was adjusted to reflect the difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, the percentage of completion of each
project, anticipated market acceptance and penetration, market growth rates and risks related to the impact of
potential changes in future target markets. In developing the estimated fair values, we used discount rates ranging
from 14 percent to 15 percent.
Other Acquisition-Related Intangible Assets
Developed product technology consisted of products that had reached technological feasibility and included
technology in ATI’s discrete GPU products, integrated chipset products, handheld products, and digital TV
products divisions. We initially expected the developed technology to have an average useful life of five years.
However, as a result of the 2007 and 2008 impairment analysis discussed below, we shortened the estimated
useful life of certain of these developed technology intangible assets to reflect their remaining useful lives. As of
December 27, 2008, the developed product technology intangible assets had an estimated average remaining
useful life of 12 months.
Game console royalty agreements represent agreements existing as of October 24, 2006 with video game
console manufacturers for the payment of royalties to ATI for intellectual property design work performed and
are estimated to have an average useful life of five years.
Customer relationship intangibles represent ATI’s customer relationships existing as of October 24, 2006
and were estimated to have an average useful life of four years. As a result of the 2007 and 2008 impairment
analysis discussed below, we shortened the estimated useful life of certain of these customer relationship
intangible assets to reflect their remaining useful lives. As of December 27, 2008, the customer relationship
intangible assets had an estimated average remaining useful life of 21 months.
Trademarks and trade names had an estimated average useful life of seven years. As a result of the 2007 and
2008 impairment analysis discussed below, we have shortened the estimated useful life of certain of these
trademarks and trade names intangible assets to reflect their remaining useful lives. As of December 27, 2008,
the trademark and trade names intangible assets had an estimated average remaining useful life of 45 months.
Customer backlog represents customer orders existing as of October 24, 2006 that had not been delivered
and were estimated to have a useful life of 14 months. As of December 27, 2008, all of these customer backlog
intangible assets have been fully amortized.
We determined the fair value of other acquisition-related intangible assets using income approaches based
on the most current financial forecast available as of October 24, 2006. The discount rates we used to discount
net cash flows to their present values ranged from 12 percent to 15 percent. We determined these discount rates
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