Intel 2010 Annual Report Download - page 80

Table of Contents
INTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
We record goodwill when the purchase price of an acquisition exceeds the fair value of the net tangible and intangible assets
as of the date of acquisition, assigning the goodwill to our applicable reporting units based on the relative expected fair value
provided by the acquisition. We perform a quarterly review of goodwill for indicators of impairment. During the fourth quarter
of each year, we perform an impairment review for each reporting unit using a fair value approach. We do not identify
manufacturing and assembly and test assets with individual reporting units because of the interchangeable nature of our
manufacturing and assembly and test assets. In determining the carrying value of the reporting unit, we make an allocation of
our manufacturing and assembly and test assets based on each reporting unit’s relative percentage utilization of the
manufacturing and assembly and test assets. For further discussion of goodwill, see “Note 17: Goodwill.”
Identified Intangible Assets
Intellectual property assets primarily represent rights acquired under technology licenses and are generally amortized on a
straight-line basis over the periods of benefit, ranging from 3 to 17 years. We amortize acquisition-related developed
technology based on economic benefit over the estimated useful life of 4 years. We amortize other intangible assets that are
subject to amortization over periods ranging from 1 to 7 years. We amortize acquisition-related in-process research and
development over the estimated useful life once the research and development efforts are completed. In the quarter following
the period in which identified intangible assets become fully amortized, the fully amortized balances are removed from the
gross asset and accumulated amortization amounts.
We perform a quarterly review of identified intangible assets to determine if facts and circumstances indicate that the useful
life is shorter than we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and
circumstances exist, we assess the recoverability of identified intangible assets by comparing the projected undiscounted net
cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying
amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful
life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over
the new shorter useful life.
For further discussion of identified intangible assets, see “Note 18: Identified Intangible Assets.”
Product Warranty
The vast majority of our products are sold with a limited warranty on product quality and a limited indemnification for
customers against intellectual property infringement claims related to our products. The accrual and the related expense for
known product warranty issues were not significant during the periods presented. Due to product testing, the short time
typically between product shipment and the detection and correction of product failures, and the historical rate of payments on
indemnification claims, the accrual and related expense for estimated incurred but unidentified issues were not significant
during the periods presented.
Revenue Recognition
We recognize net product revenue when the earnings process is complete, as evidenced by an agreement with the customer,
transfer of title, and acceptance, if applicable, as well as fixed pricing and probable collectability. We record pricing
allowances, including discounts based on contractual arrangements with customers, when we recognize revenue as a reduction
to both accounts receivable and net revenue. Because of frequent sales price reductions and rapid technology obsolescence in
the industry, we defer product revenue and related costs of sales from sales made to distributors under agreements allowing
price protection or right of return until the distributors sell the merchandise. The right of return granted generally consists of a
stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases
made by the distributor. Under the price protection program, we give distributors credits for the difference between the
original price paid and the current price that we offer. We record the net deferred income from product sales to distributors on
our balance sheet as deferred income on shipments to distributors. We include shipping charges billed to customers in net
revenue, and include the related shipping costs in cost of sales.
Sales of software, primarily through our Wind River Software Group, are made through term licenses that are generally 12
months in length, or perpetual licenses. Revenue is generally deferred and recognized ratably over the course of the license.
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