Note 3: Fair Value

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Our financial instruments are carried at fair value, except for cost basis loan participation notes, equity method and cost method investments, and most of our long-term debt. SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

Our financial instruments carried at fair value are detailed in the tables below, and the carrying values of our trading assets and available- for-sale investments for 2008 and 2007 are detailed in "Note 4: Trading Assets" and "Note 5: Available-for-Sale Investments." The fair value of our cost basis loan participation notes approximated the carrying value as of December 27, 2008 (the fair value exceeded the carrying value by approximately $50 million as of December 29, 2007). We did not hold any marketable equity method investments as of December 27, 2008; however, as of December 29, 2007, the fair value of our marketable equity method investment exceeded the carrying value by $14 million. The fair value of our non-marketable equity investments exceeded the carrying value by approximately $300 million as of December 27, 2008 and included gross unrealized losses of approximately $100 million, a majority of which were in a continuous unrealized loss position for less than 12 months. The fair value of our non-marketable equity investments exceeded the carrying value by approximately $600 million as of December 29, 2007. The fair value of these investments takes into account the movements of the equity and venture capital markets as well as changes in the interest rate environment, and other economic variables.

The fair value of our long-term debt was approximately $280 million lower than the carrying value as of December 27, 2008 (the fair value exceeded the carrying value by approximately $65 million as of December 29, 2007). The fair value of our long-term debt takes into consideration credit rating changes, equity price movements, interest rate changes, and other economic variables.

Fair Value Hierarchy

SFAS No. 157 establishes three levels of inputs that may be used to measure fair value:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 1 assets and liabilities consist of certain of our money market fund deposits and marketable debt and equity instruments, including equity securities offsetting deferred compensation, that are traded in an active market with sufficient volume and frequency of transactions.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

Level 2 assets consist of certain of our marketable debt and equity instruments with quoted market prices that are traded in less active markets or priced using a quoted market price for similar instruments. Level 2 assets also include marketable debt instruments priced using non-binding market consensus prices that can be corroborated with observable market data, marketable equity securities with security-specific restrictions that would transfer to the buyer, as well as debt instruments and derivative contracts priced using inputs that are observable in the market or can be derived principally from or corroborated with observable market data. Marketable debt instruments in this category generally include commercial paper, bank time deposits, municipal bonds, certain of our money market fund deposits, and a majority of floating-rate notes and corporate bonds.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

Level 3 assets and liabilities include marketable debt instruments, non-marketable equity investments, derivative contracts, and company- issued debt whose values are determined using inputs that are both unobservable and significant to the values of the instruments being measured. Level 3 assets also include marketable debt instruments that are priced using non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data. Marketable debt instruments in this category generally include asset-backed securities and certain of our floating-rate notes and corporate bonds.

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of December 27, 2008:

		Fair Value Measurements at Reporting Date Using
(In Millions)		Quoted Prices in Active Markets for Identical Instruments (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Assets
Commercial paper		$	—		$	4,387		$	—		$	4,387
Bank time deposits			—			633			—			633
Money market fund deposits			373			49			—			422
Floating-rate notes			126			5,997			392			6,515
Corporate bonds			26			594			163			783
Asset-backed securities			—			—			1,083			1,083
Municipal bonds			—			383			—			383
Marketable equity securities			308			44			—			352
Equity securities offsetting deferred compensation			299			—			—			299
Derivative assets			—			158			15			173
Total assets measured at fair value		$	1,132		$	12,245		$	1,653		$	15,030
Liabilities
Long-term debt		$	—		$	—		$	122		$	122
Derivative liabilities			—			274			25			299
Total liabilities measured at fair value		$	—		$	274		$	147		$	421

Assets and liabilities measured and recorded at fair value on a recurring basis, excluding accrued interest components, were presented on our consolidated balance sheets as of December 27, 2008 as follows:

		Fair Value Measurements at Reporting Date Using
(In Millions)		Quoted Prices in Active Markets for Identical Instruments (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Assets
Cash and cash equivalents		$	336		$	2,772		$	—		$	3,108
Short-term investments			149			4,953			227			5,329
Trading assets			328			2,020			814			3,162
Other current assets			—			158			3			161
Marketable equity securities			308			44			—			352
Other long-term investments			11			2,298			597			2,906
Other long-term assets			—			—			12			12
Total assets measured at fair value		$	1,132		$	12,245		$	1,653		$	15,030
Liabilities
Other accrued liabilities		$	—		$	236		$	25		$	261
Long-term debt		$	—		$	—		$	122		$	122
Other long-term liabilities			—			38			—			38
Total liabilities measured at fair value		$	—		$	274		$	147		$	421

All of our long-term debt was eligible for the fair value option allowed by SFAS No. 159 as of the effective date of the standard; however, we elected the fair value option only for the bonds issued in 2007 by the Industrial Development Authority of the City of Chandler, Arizona (2007 Arizona bonds). In connection with the 2007 Arizona bonds, we entered into an interest rate swap agreement that effectively converts the fixed rate obligation on the bonds to a floating LIBOR-based rate. As a result, changes in the fair value of this debt are primarily offset by changes in the fair value of the interest rate swap agreement, without the need to apply the hedge accounting provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). We elected not to adopt SFAS No. 159 for our Arizona bonds issued in 2005, since the bonds were carried at amortized cost and were not eligible to apply the hedge accounting provisions of SFAS No. 133 due to the use of non-derivative hedging instruments. The 2007 Arizona bonds are included within the long-term debt balance on our consolidated balance sheets. As of December 27, 2008 and December 29, 2007, no other long-term debt instruments were similar to the instrument for which we have elected the SFAS No. 159 fair value treatment.

The fair value of the 2007 Arizona bonds approximated its carrying value at the time we elected the fair value option under SFAS No. 159. As such, we did not record a cumulative-effect adjustment to the beginning balance of retained earnings or to the deferred tax liability. As of December 27, 2008, the fair value of the 2007 Arizona bonds did not significantly differ from the contractual principal balance. The fair value of the 2007 Arizona bonds was determined using inputs that are observable in the market or that can be derived from or corroborated with observable market data as well as significant unobservable inputs. Gains and losses on the 2007 Arizona bonds are recorded in interest and other, net on the consolidated statements of income. We capitalize interest associated with the 2007 Arizona bonds. We add capitalized interest to the cost of qualified assets and amortize it over the estimated useful lives of the assets.

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, using significant unobservable inputs (Level 3) for 2008:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In Millions)		Short-Term Investments			Trading Assets			Other Long-Term Investments			Other Current and Long-Term Assets			Other Accrued Liabilities			Long-Term Debt			Total Gains (Losses)
Balance as of December 29, 2007		$	798		$	1,004		$	771		$	18		$	(15)		$	(125)
Transfers from long-term to short term investments			229			—			(229)			—			—			—
Total gains or losses (realized and unrealized):
Included in earnings			—			(83)			(22)			4			(13)			3			(111)
Included in other comprehensive income			1			—			(50)			—			—			—			(49)
Purchases, sales, issuances, and settlements, net			(631)			(12)			543			(10)			3			—
Transfers in (out) of Level 3			(170)			(95)			(416)			3			—			—
Balance as of December 27, 2008		$	227		$	814		$	597		$	15		$	(25)		$	(122)
The amount of total gains or losses for the period included in earnings attributable to the changes in unrealized gains or losses related to assets and liabilities still held as of December 27, 2008		$	—		$	(83)		$	(22)		$	4		$	(13)		$	3		$	(111)

Gains and losses (realized and unrealized) included in earnings for the year ended December 27, 2008 are reported in interest and other, net and gains (losses) on other equity investments, net on the consolidated statements of income, as follows:

		Level 3
		2008
(In Millions)		Interest and Other, Net			Gains (Losses) on Other Equity Investments, Net
Total gains (losses) included in earnings		$	(115)		$	4
Change in unrealized gains (losses) related to assets and liabilities still held as of December 27, 2008		$	(115)		$	4

Assets/Liabilities Measured at Fair Value on a Non-recurring Basis

The following table presents the financial instruments that were measured at fair value on a non-recurring basis as of December 27, 2008, and the gains (losses) recorded during 2008 on those assets:

				Fair Value Measured Using
(In Millions)		Carrying Value as of December 27, 2008			Quoted Prices in Active Markets for Identical Instruments (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Gains (Losses) for 12 Months Ended December 27, 2008
Clearwire Communications, LLC		$	238		$	—		$	238		$	—		$	(762)
Numonyx B.V.(1)		$	484		$	—		$	—		$	503		$	(250)
Other non-marketable equity investments		$	84		$	—		$	—		$	84		$	(200)
Total gains (losses) for assets held as of December 27, 2008														$	(1,212)
Gains (losses) for assets no longer held														$	—
Total gains (losses) for non-recurring measurement														$	(1,212)

(1)	Our carrying value as of December 27, 2008 did not equal our fair value measurement at the time of impairment due to the subsequent recognition of equity method adjustments.

A portion of our non-marketable equity investments were measured at fair value during 2008 due to events or circumstances we identified that significantly impacted the fair value of these investments, resulting in other-than-temporary impairment charges.

During the fourth quarter of 2008, we recorded a $762 million impairment charge on our investment in Clearwire Communications, LLC (Clearwire LLC) to write down our investment to its fair value, primarily due to the fair value being significantly lower than the cost basis of our investment. The impairment charge was included in gains (losses) on equity method investments, net on the consolidated statements of income. We determine the fair value of our investment in Clearwire LLC primarily using the quoted prices for its parent company, the new Clearwire Corporation. The effects of adjusting the quoted price for premiums that we believe market participants would consider for Clearwire LLC, such as tax benefits and voting rights associated with our investment, were mostly offset by the effects of discounts to the fair value, such as those due to transfer restrictions, lack of liquidity, and differences in dividend rights that are included in the value of the new Clearwire Corporation stock. We classified our investment in Clearwire LLC as Level 2, as the unobservable inputs to the valuation methodology were not significant to the measurement of fair value. For additional information about Clearwire, see "Note 6: Equity Method and Cost Method Investments."

We recorded a $250 million impairment charge on our investment in Numonyx B.V. during the third quarter of 2008 to write down our investment to its fair value. Estimates for revenue, earnings, and future cash flows were revised lower due to a general decline in the NOR flash memory market segment. We measure the fair value of our investment in Numonyx using a combination of the income approach and the market approach. The income approach included the use of a weighted average of multiple discounted cash flow scenarios of Numonyx, which required the use of unobservable inputs, including assumptions of projected revenue, expenses, capital spending, and other costs, as well as a discount rate calculated based on the risk profile of the flash memory market segment. The market approach included using financial metrics and ratios of comparable public companies. The impairment charge was included in gains (losses) on equity method investments, net on the consolidated statements of income.

We also measured other non-marketable equity investments at fair value during 2008 when we recognized other-than-temporary impairment charges. We classified these impaired non-marketable equity investments as Level 3, as we use unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuation requires management judgment due to the absence of quoted market prices and inherent lack of liquidity. We calculated these fair value measurements using the market approach and/or the income approach. The market approach includes the use of financial metrics and ratios of comparable public companies. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies' sizes, growth rates, products and services lines, development stage, and other relevant factors. The income approach includes the use of a discounted cash flow model, which requires the following significant estimates for the investee: revenue, based on assumed market segment size and assumed market segment share; estimated costs; and appropriate discount rates based on the risk profile of comparable companies. Estimates of market segment size, market segment share, and costs are developed by the investee and/or Intel using historical data and available market data. The valuation of our other non-marketable equity investments also takes into account movements of the equity and venture capital markets, recent financing activities by the investees, changes in the interest rate environment, the investee's capital structure, liquidation preferences for the investee's capital, and other economic variables. The valuation of some of our investments in the wireless connectivity market segment was based on the income approach to determine the value of the investee's spectrum licenses, transmission towers, and customer lists.