Note 15: Acquisitions

McAfee, Inc.

On February 28, 2011, we completed the acquisition of McAfee by acquiring all issued and outstanding common shares in exchange for cash. The acquired company will continue to operate as McAfee and offer products for endpoint security, system security, consumer security, network security, and risk and compliance. In addition to managing the existing McAfee business, the objective of the acquisition is to accelerate and enhance the combination of hardware and software security solutions, improving the overall security of our platforms.

Total consideration to acquire McAfee was $6.7 billion (net of $943 million of cash and cash equivalents acquired) and comprised the following:

The allocation of purchase consideration to assets and liabilities is not yet finalized. The preliminary allocation of the purchase price was based upon a preliminary valuation and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are the determination of the tax basis of certain assets and liabilities, the determination of certain tax carry forwards, residual goodwill, and the allocation of goodwill to our reporting units. Reporting units are equivalent to our operating segments. The preliminary fair values of the assets acquired and liabilities assumed by major class in the acquisition of McAfee were recognized as follows:

The preliminary goodwill of $4.3 billion arising from the acquisition is primarily attributed to the assembled workforce of McAfee and synergies to enable the combination of security and hardware from a single company to protect online devices. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. For the information on the assignment of preliminary goodwill for the acquisition, see “Note 17: Goodwill.”

The identified intangible assets assumed in the acquisition of McAfee were recognized as follows based upon their fair values as of February 28, 2011:

Acquired developed technology represents the fair values of McAfee products that have reached technological feasibility and are a part of McAfee's product offerings. [Customer relationships represent the fair values of the underlying relationships and agreements with McAfee's customers. In-process research and development represents the fair values of incomplete McAfee research and development projects that had not reached technological feasibility as of the date of acquisition. In the future, the fair value of each project at the acquisition date will be either amortized or impaired depending on whether the project is completed or abandoned. Trade names are indefinite lived intangible assets and represent the fair values of brand and name recognition associated with the marketing of McAfee's products and services.

Other 2011 Acquisitions

During the first half of 2011, in addition to the McAfee acquisition, we completed seven acquisitions qualifying as business combinations in exchange for total consideration of $1.7 billion, substantially all cash consideration. Total net cash consideration to acquire the Wireless Solutions (WLS) business of Infineon Technologies AG, which operates as Intel Mobile Communications (IMC), was $1.4 billion. The WLS business offers mobile phone components such as baseband processors, radio frequency transceivers, and power management chips. In addition to managing the existing WLS business, the objective of the acquisition is to provide solutions that enable a broad range of computing applications to have wireless connectivity.

The allocation of purchase consideration to assets and liabilities acquired in the acquisition of the WLS business is not yet finalized. The preliminary allocation of the purchase price was based upon a preliminary valuation and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are the valuation of net tangible assets acquired, residual goodwill, and the allocation of goodwill to our reporting units. The preliminary fair values of the assets acquired and liabilities assumed by major class in the acquisitions completed during the first half of 2011, excluding McAfee, was allocated as follows:

For the information on the assignment of preliminary goodwill for the acquisitions, see “Note 17: Goodwill.”

The identified intangible assets assumed in the acquisitions completed during the first half of 2011, excluding McAfee, were recognized as follows:

Acquired developed technology represents the fair values of the acquirees' products that have reached technological feasibility and are a part of the acquirees' product lines. [Customer relationships represent the fair values of the underlying relationships and agreements with the acquirees' customers. In-process research and development represents the fair values of incomplete research and development projects that had not reached technological feasibility as of the date of acquisition.

Actual and Pro Forma Results of Acquirees

Net revenue and net income attributable to acquisitions completed during the first half of 2011 have been included in our consolidated condensed statements of income from their respective acquisition dates to the period ended July 2, 2011. The acquisitions completed during the first half of 2011 were not individually significant to our consolidated condensed results of operations, however, they were significant in the aggregate. For the three and six months ended July 2, 2011, the results of the businesses acquired in 2011 contributed approximately $1.0 billion and $1.5 billion, respectively, to our net revenue and reduced our net income by approximately $50 million and $120 million, respectively; substantially all of these impacts were attributable to McAfee and Intel Mobile Communications and include the impacts of the amortization of acquired identified intangible assets.

McAfee is a non-reportable operating segment and is aggregated with similar non-reportable operating segments within the software and services operating segments category for segment reporting purposes. Intel Mobile Communications is a non-reportable operating segment and is aggregated with similar non-reportable operating segments within the other Intel architecture operating segments category for segment reporting purposes. For further information, see “Note 27: Operating Segment Information.”

The unaudited pro forma financial results for the three and six months ended July 2, 2011 and June 26, 2010 combine the historical results of Intel for the three and six months ended July 2, 2011 and June 26, 2010, respectively, along with the historical results of the businesses acquired during the first half of 2011 for the three and six months ended June 30, 2011 and June 30, 2010, respectively (due to differences in reporting periods). The results include the effects of pro forma adjustments as if businesses acquired in the first half of 2011 were acquired on December 27, 2009. The three and six months ended June 26, 2010 pro forma results include nonrecurring adjustments of $89 million and $202 million, respectively, which reduce net income due to the revaluation of McAfee's historic deferred revenue to fair value.

The pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisitions. This is presented for informational purposes only and is not indicative of future operations or results that would have been achieved had the acquisitions been completed as of December 27, 2009.