Intel 2010 Annual Report Download - page 44

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Non
-Marketable Equity Investments
We regularly invest in non-marketable equity instruments 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 $2.6
billion as of December 25, 2010 ($3.4 billion as of December 26, 2009). The majority of this balance as of December 25, 2010
was concentrated in companies in the flash memory market segment. Our flash memory market segment investments include
our investment in IM Flash Technologies, LLC (IMFT) and IM Flash Singapore, LLP (IMFS) of $1.5 billion ($1.6 billion as
of December 26, 2009). For additional information, see “Note 11: Equity Method and Cost Method Investments” in Part II,
Item 8 of this Form 10-K.
Our non-marketable equity investments are recorded using the cost method or the equity method of accounting, depending on
the facts and circumstances of each investment. Our non-marketable equity investments are classified within other long-term
assets on the consolidated balance sheets.
Non
-marketable equity investments are inherently risky, and their success is dependent on product development, market
acceptance, operational efficiency, other key business factors, and the ability of the investee companies to raise additional
funds in financial markets that can be volatile. The companies could fail or not be able to raise additional funds when needed,
or they may receive lower valuations with less favorable investment terms than previous financings. These events could cause
our investments to become impaired. In addition, financial market volatility could negatively affect our ability 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, see “Risk Factors” in Part I, Item 1A of this Form 10-K.
We determine the fair value of our non-marketable equity investments quarterly for disclosure purposes; however, the
investments are recorded at fair value only if an impairment charge is recognized. We determine the fair value of our non-
marketable equity investments using the market and income approaches. The market approach includes the use of financial
metrics and ratios of comparable public companies, such as projected revenues, earnings, and comparable performance
multiples. The selection of comparable companies requires management judgment and is based on a number of factors,
including comparable companies’ sizes, growth rates, industries, development stages, and other relevant factors. The income
approach includes the use of a discounted cash flow model, which may include one or multiple discounted cash flow scenarios
and requires the following significant estimates for the investee: revenue, based on assumed market segment size and assumed
market segment share; expenses, capital spending, and other costs; and discount rates based on the risk profile of comparable
companies. Estimates of market segment size, market segment share, expenses, capital spending, and other costs are developed
by the investee and/or Intel using historical data and available market data. The valuation of our non-marketable equity
investments also takes into account variables such as conditions reflected in the capital markets, recent financing activities by
the investees, the investees’ capital structure, and the terms of the investees’ issued interests.
For non-marketable equity investments, the measurement of fair value requires significant judgment and includes quantitative
and qualitative analysis of identified events or circumstances that impact the fair value of the investment, such as:
If the fair value of an investment is below our carrying value, we determine if the investment is other than temporarily
impaired based on our quantitative and qualitative analysis, which includes assessing the severity and duration of the
impairment and the likelihood of recovery before disposal. If the investment is considered to be other than temporarily
impaired, we write down the investment to its fair value. Impairments of non-marketable equity investments were $125
million in 2010. Over the past 12 quarters, including the fourth quarter of 2010, impairments of non-marketable equity
investments ranged from $11 million to $896 million per quarter. This range included impairments of $896 million during the
fourth quarter of 2008, primarily related to a $762 million impairment charge on our investment in Clearwire
Communications, LLC (Clearwire LLC).
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•
the investee
’
s revenue and earnings trends relative to pre
-
defined 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.