Intel 2007 Annual Report Download - page 34

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results
that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective
judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical
accounting estimates include:
Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other policies that we
consider key accounting policies, such as those for revenue recognition, including the deferral of revenue on sales to
distributors; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective.
Non
-Marketable Equity Investments
We regularly invest in non-marketable equity investments of private companies, which range from early-stage companies that
are often still defining their strategic direction to more mature companies with established revenue streams and business
models. The carrying value of our non-marketable equity investment portfolio, excluding equity derivatives, totaled
$3.4 billion at December 29, 2007 ($2.8 billion at December 30, 2006) and included our investment in IMFT of $2.2 billion
($1.3 billion at December 30, 2006). Our non-marketable equity investments are classified in other long-term assets on the
consolidated balance sheets.
Non
-marketable equity investments are inherently risky, and a number of these companies are likely to fail. Their success is
dependent on product development, market acceptance, operational efficiency, and other factors. In addition, depending on
their future prospects and market conditions, they 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.
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 include:
Investments that we identify as having an indicator of impairment are subject to further analysis to determine if the investment
is other than temporarily impaired, in which case we write down the investment to its estimated fair value. For non-
marketable
equity investments that we do not consider viable from a financial or technological point of view, we write down the entire
investment, since we consider the estimated fair value to be nominal. Over the past 12 quarters, including the fourth quarter of
2007, impairments of non-marketable equity investments have ranged between $10 million and $44 million per quarter.
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• the valuation of non-marketable equity investments, which impacts net gains (losses) on equity investments when we
record impairments;
• the assessment of recoverability of long-lived assets, which primarily impacts gross margin or operating expenses
when we record asset impairments or accelerate their depreciation;
• the recognition and measurement of current and deferred income tax assets and liabilities (including the measurement
of uncertain tax positions), which impact our tax provision;
•
the valuation of inventory, which impacts gross margin; and
• the valuation and recognition of share-based compensation, which impact gross margin; R&D expenses; and
marketing, general and administrative expenses.
•
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. If an investee obtains additional funding at a valuation
lower than our carrying amount or a new round of equity funding is required for the investee to remain in business, and
the new round of equity does not appear imminent, it is presumed that the investment is other than temporarily
impaired, unless specific facts and circumstances indicate otherwise.