AMD 2008 Annual Report Download - page 64

The updated financial forecast for our former Consumer Electronics segment was lower primarily because
our Digital Television business was affected by the rapid introduction and proliferation of low cost digital
televisions that did not contain our technology. The availability and adoption of these low cost alternatives by
consumers resulted in lower forecasted sales to those companies employing our technology. In addition, our
Handheld business was dependant on a small number of mobile handset customers for its revenues. During 2007,
one handset customer experienced severe competition and eroding market share for its consumer handset
products. These two principal factors resulted in lower near-term and longer-term forecasts of revenues,
operating profitability, and cash flows compared to our forecast at the time of the ATI acquisition.
These updated long-term financial forecasts represented the best estimate that we had at the time, and we
believe that the underlying assumptions were reasonable at that time.
The outcome of our 2007 goodwill impairment analysis indicated that the carrying amount of certain
acquisition-related intangible assets or asset groups may not be recoverable. We assessed the recoverability of the
acquisition-related intangible assets or asset groups, as appropriate, by determining whether the unamortized
balances could be recovered through undiscounted future net cash flows. We determined that certain of the
acquisition related developed product technology associated with our Graphics and Consumer Electronics
segments was impaired primarily due to the revised lower revenue forecasts associated with the products
incorporating such developed product technology. We measured the amount of impairment by calculating the
amount by which the carrying value of the assets exceeded their estimated fair values, which were based on
projected discounted future net cash flows. As a result of this impairment analysis, we recorded an impairment
charge of $349 million, of which $219 million is included in the caption “Impairment of goodwill and acquired
intangible assets” and $130 million is included in the caption “Income (loss) from discontinued operations, net of
tax” in our 2007 consolidated statement of operations.
2008 Impairment
In the second quarter of 2008, we evaluated the viability of our non-core businesses and determined that our
Handheld and Digital Television business units were not directly aligned with our core strategy of computing and
graphics market opportunities. Therefore, we decided to divest these units and classify them as discontinued
operations in our financial statements. As a result, we performed an interim impairment test of goodwill and
concluded that the carrying amounts of goodwill associated with our Handheld and Digital Television business
units were impaired, and we recorded an impairment charge of $799 million, of which $336 million related to the
Handheld business unit is included in the caption “Impairment of goodwill and acquired intangible assets” and
$463 million related to the Digital Television business unit is included in the caption, “Income (loss) from
discontinued operations, net of tax” in our 2008 consolidated statement of operations. The impairment charges
were determined by comparing the carrying value of goodwill assigned to the reporting units with the implied
fair value of the goodwill. We considered both the income and market approaches in determining the implied fair
value of the goodwill. We chose the same approach that we used during the 2007 impairment analysis, which
required estimates of future operating results and cash flows of each of the reporting units discounted using
estimated discount rates ranging from 18 percent to 32 percent. The estimates of future operating results and cash
flows were principally derived from an updated long-term financial forecast, which was revised as a result of the
challenging economic environment. The decline in the implied fair value of the goodwill and resulting
impairment charge was primarily driven by the estimated proceeds from the expected divestiture of these
business units.
The outcome of our goodwill impairment analysis indicated that the carrying amount of certain of our
Handheld and Digital Television business unit acquisition-related intangible assets or asset groups may not have
been recoverable. We determined that the carrying amounts of certain acquisition-related intangible assets
associated with our Handheld and Digital Television business units exceeded their estimated fair values, and we
recorded an impairment charge of $77 million, of which $67 million related to the Handheld business unit is
included in the caption “Impairment of goodwill and acquired intangible assets” and $10 million related to the
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