Equity Joint Venture |
6 Months Ended |
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Jun. 29, 2019 | |
| Equity Method Investments and Joint Ventures [Abstract] | |
| Equity Joint Venture | Equity Interest Purchase Agreement - ATMP Joint Venture
The Company holds a 15% equity interest in two joint ventures (collectively, the ATMP JV), and as such, the ATMP JV is a related party of the Company. The Company has no obligation to fund the ATMP JV. The Company accounts for its equity interests in the ATMP JV under the equity method of accounting due to its significant influence over the ATMP JV.
The ATMP JV provides assembly, test, mark and packaging (ATMP) services to the Company. The Company assists the ATMP JV in its management of certain raw material inventory. The purchases from and resales to the ATMP JV of inventory under inventory management is reported within purchases and resales with the ATMP JV and does not impact the Company’s condensed consolidated statement of operations.
The Company’s total purchases from the ATMP JV during the three and six months ended June 29, 2019 amounted to $172 million and $304 million, respectively. The Company’s total purchases from the ATMP JV during the three and six months ended June 30, 2018 amounted to $143 million and $278 million, respectively. As of June 29, 2019 and December 29, 2018, the amount payable to the ATMP JV was $201 million and $207 million, respectively, included in Payables to related parties on the Company’s condensed consolidated balance sheets. The Company’s resales back to the ATMP JV during the three and six months ended June 29, 2019 amounted to $17 million and $43 million, respectively. The Company’s resales back to the ATMP JV during the three and six months ended June 30, 2018 amounted to $13 million and $19 million, respectively. As of June 29, 2019 and December 29, 2018, the Company had receivables from ATMP JV of $11 million and $16 million, respectively, included in Prepayments and receivables—related parties on the Company’s condensed consolidated balance sheets.
For the three and six months ended June 29, 2019, the Company recorded $0 million and $1 million, respectively, in Equity loss in investee on its condensed consolidated statements of operations, which included certain expenses incurred by the Company on behalf of the ATMP JV. For the three and six months ended June 30, 2018, the Company recorded $1 million and $2 million, respectively, in Equity loss in investee on its condensed consolidated statements of operations, which included certain expenses incurred by the Company on behalf of the ATMP JV. As of June 29, 2019 and December 29, 2018, the carrying value of the Company’s investment in the ATMP JV was $58 million and $58 million, respectively.Equity Joint Venture
In February 2016, the Company and Higon Information Technology Co., Ltd. (THATIC), a third-party Chinese entity (JV Partner), formed a joint venture comprised of two separate legal entities, China JV1 and China JV2 (collectively, the THATIC JV). The Company’s equity share in China JV1 and China JV2 is a majority and minority interest, respectively, funded by the Company’s contribution of certain of its patents. The JV Partner is responsible for the initial and on-going financing of the THATIC JV’s operations. The Company has no obligations to fund the THATIC JV.
The Company concluded the China JV1 and China JV2 are not operating joint ventures and are variable interest entities due to their reliance on on-going financing by the JV Partner. The Company determined that it is not the primary beneficiary of either China JV1 or China JV2, as the Company does not have unilateral power to direct selling and marketing, manufacturing and product development activities related to the THATIC JV’s products. Accordingly, the Company does not consolidate either of these entities and therefore accounts for its investments in the THATIC JV under the equity method of accounting. The THATIC JV is a related party of the Company.
The Company’s share in the net losses of the THATIC JV for the three and six months ended June 29, 2019 is not recorded in the Company’s condensed consolidated statements of operations since the Company is not obligated to fund the THATIC JV’s losses in excess of the Company’s investment in the THATIC JV, which was zero as of June 29, 2019. As of June 29, 2019 and December 29, 2018, the total assets and liabilities of the THATIC JV were not material.
In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV for a total of $293 million in license fees payable over several years contingent upon achievement of certain milestones. The Company also expects to receive a royalty based on the sales of the THATIC JV’s products to be developed on the basis of such Licensed IP. The Company classifies Licensed IP income and royalty income, associated with the February 2016 agreement, as licensing gain within operating income. The Company recognized $60 million as licensing gain associated with the Licensed IP during the six months ended June 29, 2019.
In March 2017, the Company entered into a development and intellectual property agreement (Development and IP) with the THATIC JV, and also expects to receive a royalty based on the sales of the THATIC JV’s products to be developed on the basis of such agreement. The Company classifies Development and IP income and royalty income, associated with the March 2017 agreement, as revenue once earned.
In addition, from time to time, the Company enters into certain agreements with the THATIC JV to provide other services primarily related to research and development.
The Company’s receivable from the THATIC JV for the above agreements was $19 million and $18 million as of June 29, 2019 and December 29, 2018, respectively, included in Prepayments and receivables—related parties on its condensed consolidated balance sheets.
In June 2019, the U.S. Commerce Department’s Bureau of Industry and Security added five Chinese entities to the Entity List, including THATIC and the THATIC JV. As a result of the Entity List designation, the Company is complying with U.S. law pertaining to the Entity List designation.
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