Equity Joint Venture |
3 Months Ended |
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Mar. 30, 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). 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. As of March 30, 2019 and December 29, 2018, the carrying value of the Company’s investment in the ATMP JV was $57 million and $58 million, respectively. The ATMP JV is a related party of the Company. The ATMP JV provides assembly, test, mark and packaging (ATMP) services to the Company. The Company currently pays the ATMP JV for ATMP services on a cost-plus basis. 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 months ended March 30, 2019 and March 31, 2018 amounted to $132 million and $135 million, respectively. As of March 30, 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 months ended March 30, 2019 and March 31, 2018 amounted to $26 million and $6 million, respectively. As of March 30, 2019 and December 29, 2018, the Company had receivables from ATMP JV of $25 million and $16 million, respectively, included in Prepayment and receivables—related parties on the Company’s condensed consolidated balance sheets.
For both the three months ended March 30, 2019 and March 31, 2018, the Company recorded $1 million 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.
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 months ended March 30, 2019 was not material and 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 March 30, 2019. As of March 30, 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 other operating income. For the three months ended March 30, 2019, the Company recognized $60 million as licensing gain associated with the Licensed IP.
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 $13 million and $18 million as of March 30, 2019 and December 29, 2018, respectively, included in Prepayment and receivables—related parties on its condensed consolidated balance sheets.
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