Note 6: Equity Method and Cost Method Investments

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Equity Method Investments

Equity method investments as of December 27, 2008 and December 29, 2007 were as follows:

		2008						2007
(In Millions, Except Percentages)		Carrying Value			Ownership Percentage			Carrying Value			Ownership Percentage
IM Flash Technologies, LLC		$	1,742			49%		$	2,224			49%
IM Flash Singapore, LLP			329			49%			146			49%
Numonyx B.V.			484			45%			—			—%
Clearwire Communications, LLC(1)			238			8%			—			—%
Old Clearwire Corporation(2)			—			—%			508			22%
Other equity method investments			239						227
Total		$	3,032					$	3,105

(1)	Represents our interest in the Clearwire LLC holding company, as a percentage of the consolidated new Clearwire Corporation.
(2)	Our pre-existing investment in the old Clearwire Corporation was converted into shares of the new Clearwire Corporation and is recorded as a marketable equity security. For further discussion, see "Note 5: Available-for-Sale Investments."

Our equity method investments are classified in other long-term assets on the consolidated balance sheets. The carrying value of our equity method investments, categorized as non-marketable and marketable equity method investments, as of December 27, 2008 and December 29, 2007, were as follows:

(In Millions)		2008			2007
Non-marketable equity method investments		$	3,032		$	2,597
Marketable equity method investment			—			508
Total		$	3,032		$	3,105

Net losses on equity method investments were $1.4 billion in 2008 (net gains of $3 million in 2007 and $2 million in 2006), including equity method impairment charges of $1.1 billion in 2008 ($28 million in 2007 and $7 million in 2006). During 2008, we recognized a $762 million impairment charge on our investment in Clearwire LLC (for information on the impairment of our available-for-sale investment in the new Clearwire Corporation, see "Note 7: Gains (Losses) on Other Equity Investments, Net") and a $250 million impairment charge on our investment in Numonyx. Equity method losses on our investment in the old Clearwire Corporation were $184 million in 2008 and $104 million in 2007, and equity method losses on our investment in Numonyx were $87 million in 2008. In addition, the net gain on equity method investments in 2007 included approximately $110 million of income due to the reorganization of one of our investments. Equity method losses were not significant in 2006.

Summarized Financial Information of Equity Method Investees

The following is the aggregated summarized financial information of our equity method investees, which includes summary results of operations information for fiscal years 2008, 2007, and 2006 and summary balance sheet information as of December 27, 2008 and December 29, 2007:

(In Millions)		2008			2007			2006
Operating results:
Net revenue		$	3,456		$	1,484		$	403
Gross margin		$	444		$	67		$	(13)
Operating income (loss)		$	(702)		$	(490)		$	(76)
Net income (loss)		$	(932)		$	(674)		$	(63)

(In Millions)		Dec. 27, 2008			Dec. 29, 2007
Balance sheet:
Current assets		$	3,257		$	2,013
Non-current assets		$	7,322		$	5,703
Current liabilities		$	1,316		$	653
Non-current liabilities		$	2,469		$	1,150
Redeemable preferred stock		$	50		$	83
Minority interest		$	10		$	13

Summarized financial information for our equity method investees is presented on the basis of up to a one-quarter lag and is included for the periods in which we held an equity method ownership interest. Summarized financial information for Clearwire Corporation is presented as of September 30, 2008, and does not reflect any changes that have occurred as a result of Clearwire Corporation and Sprint Nextel Corporation combining their respective WiMAX businesses in the fourth quarter of 2008.

IMFT/IMFS

Micron and Intel formed IM Flash Technologies, LLC (IMFT) in January 2006 and IM Flash Singapore, LLP (IMFS) in February 2007. We established these joint ventures to manufacture NAND flash memory products for Micron and Intel. Intel owns a 49% interest in each of these ventures. Our investments were $1.7 billion in IMFT and $329 million in IMFS as of December 27, 2008 ($2.2 billion in IMFT and $146 million in IMFS as of December 29, 2007). Our investments in these ventures are classified within other long-term assets. During 2008, IMFT returned $298 million to Intel, and that amount is reflected as a return of equity method investment within investing activities on the consolidated statements of cash flows.

As part of the initial capital contribution to IMFT, we paid $615 million in cash and issued $581 million in non-interest-bearing notes. During 2006, we paid the entire balance of $581 million to settle the non-interest-bearing notes, which has been reflected as a financing activity on the consolidated statements of cash flows. At inception, Micron contributed assets valued at $995 million and $250 million in cash in exchange for a 51% interest. In addition, we contributed approximately $1.3 billion over the past three years pursuant to the terms of the original agreement.

Initial production from IMFT began in early 2006. Our portion of IMFT costs, primarily related to product purchases and start-up, was approximately $1.1 billion during 2008 (approximately $790 million during 2007 and $300 million during 2006). The amount due to IMFT for product purchases and services provided was approximately $190 million as of December 27, 2008 and approximately $130 million as of December 29, 2007. Costs that Intel and Micron have incurred for product and process development related to IMFT are generally split evenly between Intel and Micron and are generally classified in research and development.

In the fourth quarter of 2008, management approved a plan with Micron to discontinue the supply of NAND flash memory from the 200mm facility within the IMFT manufacturing network. The agreement resulted in a $215 million restructuring charge primarily related to the IMFT 200mm supply agreement. The restructuring charge resulted in a reduction of our investment in IMFT of $184 million, a cash payment to Micron of $24 million, and other cash payments of $7 million.

Subject to certain conditions, we originally agreed to contribute up to approximately $1.7 billion for IMFS in the three years following the initial capital contributions, of which our maximum remaining commitment was approximately $1.3 billion as of December 27, 2008. However, the construction of the IMFS fabrication facility has been placed on hold.

IMFT and IMFS are each governed by a Board of Managers, with Micron and Intel initially appointing an equal number of managers to each of the boards. The number of managers appointed by each party adjusts depending on the parties' ownership interests. These ventures will operate until 2016 but are subject to prior termination under certain terms and conditions.

These joint ventures are variable interest entities as defined by FASB Interpretation No. 46(R), "Consolidation of Variable Interest Entities" (FIN 46(R)), because all costs of the joint ventures will be passed on to Micron and Intel through our purchase agreements. IMFT and IMFS are dependent upon Micron and Intel for any additional cash requirements. Our known maximum exposure to loss approximated our investment balances as of December 27, 2008, which were $1.7 billion in IMFT and $329 million in IMFS ($2.2 billion in IMFT and $146 million in IMFS as of December 29, 2007). As of December 27, 2008, except for the amount due to IMFT and IMFS for product purchases and services, we did not incur any additional liabilities in connection with our interests in these joint ventures. In addition to the potential loss of our existing investments, our actual losses could be higher, as Intel and Micron are liable for other future operating costs and/or obligations of IMFT and IMFS. In addition, future cash calls could increase our investment balance and the related exposure to loss. Finally, as we are currently committed to purchasing 49% of IMFT's production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.

Micron and Intel are also considered related parties under the provisions of FIN 46(R). As a result, the primary beneficiary is the entity that is most closely associated with the joint ventures. To make that determination, we reviewed several factors. The most important factors were consideration of the size and nature of the joint ventures' operations relative to Micron and Intel, and which party had the majority of economic exposure under the purchase agreements. Based on those factors, we have determined that Micron is most closely associated with the joint ventures; therefore, we account for our interests using the equity method of accounting and do not consolidate these joint ventures.

The fair value of our investment in IMFT and IMFS approximated carrying value as of December 27, 2008 and is included within other long-term assets. We determine the fair value of our investments in IMFT and IMFS and related intangible assets using the income approach, based on a weighted average of multiple discounted cash flow scenarios of our NAND Solutions Group business. The assumptions that most significantly affect the fair value determination are the estimates for the projected revenue and discount rate. It is reasonably possible that the estimates used in our valuation as of December 27, 2008 could change in the near term and result in an impairment of our investments. Based on our valuation as of December 27, 2008, a 5% decline in projected revenue in each of our cash flow scenarios would result in a decline in the fair value of our investment of up to approximately $300 million, and a one percentage point increase in the discount rate would result in a decline in the fair value of our investment by approximately $225 million.

In connection with an agreement between Intel and Apple, Inc. to supply a portion of the NAND flash memory output that we will purchase from IMFT, Apple provided a refundable $250 million pre-payment to Intel. In the fourth quarter of 2008, the NAND flash memory supply agreement was terminated, and the remaining portion of the pre-payment of $167 million was refunded to Apple.

Clearwire LLC

In the fourth quarter of 2008, we invested $1.0 billion in Clearwire LLC, a wholly owned subsidiary of the new Clearwire Corporation. For further discussion, see "Note 5: Available-for-Sale Investments." Our investment in Clearwire LLC is accounted for under the equity method of accounting, and our proportionate share of the income or loss is recognized on a one-quarter lag. As such, we did not record equity method adjustments during 2008 related to Clearwire LLC. The cost basis of this investment was initially $17 per share, based on the transaction agreement entered into in the second quarter of 2008. During the fourth quarter of 2008, we recorded a $762 million impairment charge on our investment in Clearwire LLC to write down our investment to its fair value of $238 million. The impairment charge is included in gains (losses) on equity method investments, net on the consolidated statements of income. For further discussion, see "Note 3: Fair Value."

Numonyx

In the second quarter of 2008, we divested our NOR flash memory business in exchange for a 45.1% ownership interest in Numonyx. For further discussion, see "Note 12: Divestitures." Our initial ownership interest, comprising common stock and a note receivable, was recorded at $821 million. Our investment is accounted for under the equity method of accounting, and our proportionate share of the income or loss is recognized on a one-quarter lag. During 2008, we recorded $87 million of equity method losses and a $250 million impairment charge on our investment in Numonyx within gains (losses) on equity method investments, net. For further discussion, see "Note 3: Fair Value."

As of December 27, 2008, our investment balance in Numonyx was $484 million and is included within other long-term assets. The carrying amount of our investment in Numonyx is approximately $400 million below our share of the book value of the net assets of Numonyx. Most of this difference has been assigned to specific Numonyx long-lived assets, and our proportionate share of Numonyx income or loss will be adjusted to recognize this difference over the estimated remaining useful lives of those long-lived assets.

Additional terms of our investment in Numonyx include:

• We are leasing a facility in Israel to Numonyx for a period of up to 24 years under a fully paid, up-front operating lease. Upon completion of the divestiture, we recorded $82 million of deferred income representing the value of the prepaid operating lease. The deferred income will generally offset the related depreciation over the lease term.
• We entered into supply and service agreements that involve the manufacture and the assembly and test of NOR flash memory products for Numonyx through 2008. The fair value of these agreements was $110 million and was recorded in other accrued liabilities upon completion of the transaction. This amount was recognized during 2008, primarily as a reduction of cost of sales. In the fourth quarter of 2008, we agreed with Numonyx to extend certain supply and service agreements through the end of 2009.
• We entered into a transition services agreement that involves providing certain services, such as information technology, supply chain, and finance support, to Numonyx for up to one year. The reimbursement from Numonyx for these services offsets the related cost of sales and operating expenses.
• Numonyx entered into an unsecured, four-year senior credit facility of up to $550 million, comprising a $450 million term loan and a $100 million revolving loan. Intel and STMicroelectronics N.V. have each provided the lenders with a guarantee of 50% of the payment obligations of Numonyx under the senior credit facility. A demand on our guarantee can be triggered if Numonyx is unable to meet its obligations under the credit facility. Acceleration of the obligations of Numonyx under the credit facility could be triggered by a monetary default of Numonyx or, in certain circumstances, by events affecting the creditworthiness of STMicroelectronics. This guarantee is within the scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of others." The maximum amount of future undiscounted payments that we could be required to make under the guarantee is $275 million plus accrued interest, expenses of the lenders, and penalties. As of December 27, 2008, the carrying amount of the liability associated with the guarantee was $79 million and is included in other accrued liabilities.
• Our note receivable is subordinated to the senior credit facility and the preferential payout of Francisco Partners L.P., and will be deemed extinguished in liquidation events that generate proceeds insufficient to repay the senior credit facility and Francisco Partners' preferential payout.

As of December 27, 2008, approximately $37 million was included in accounts receivable, net for supply and service agreements related to the manufacture and assembly and test of NOR flash memory products by Intel on behalf of Numonyx. As of December 27, 2008, approximately $111 million was included in other current assets for amounts due to Intel from Numonyx, primarily for services performed under transition services agreements.

Cost Method Investments

Our non-marketable cost method investments are classified in other long-term assets on the consolidated balance sheets. The carrying value of our non-marketable cost method investments was $1.0 billion as of December 27, 2008 and $805 million as of December 29, 2007. We recognized impairment charges on non-marketable cost method investments of $135 million in 2008 ($90 million in 2007 and $71 million in 2006).