Equity Joint Ventures
|12 Months Ended|
Dec. 28, 2019
|Equity Method Investments and Joint Ventures [Abstract]|
|Equity Joint Ventures||Equity Joint Ventures
ATMP Joint Ventures
The Company holds a 15% equity interest in two joint ventures (collectively, the ATMP JV) with Tongfu Microelectronics Co., Ltd, a Chinese joint stock company, 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 consolidated statement of operations.
The Company’s total purchases from the ATMP JV during 2019 and 2018 amounted to $660 million and $574 million, respectively. As of December 28, 2019 and December 29, 2018, the amount payable to the ATMP JV was $213 million and $207 million, respectively, included in Payables to related parties on the Company’s consolidated balance sheets. The Company’s resales back to the ATMP JV during 2019 and 2018 amounted to $56 million and $62 million, respectively. As of December 28, 2019 and December 29, 2018, the Company had receivables from ATMP JV of $7 million and $16 million, respectively, included in Prepayment and receivables—related parties on the Company’s consolidated balance sheets.
During 2019, the Company did not record any gain or loss in Equity loss in investee on its consolidated statements of operations. During 2018 and 2017, the Company recorded $2 million and $7 million, respectively, in Equity loss in investee, which included certain expenses incurred by the Company on behalf of the ATMP JV. As of December 28, 2019 and December 29, 2018, the carrying value of the Company’s investment in the ATMP JV was approximately $58 million.
THATIC Joint Ventures
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 does not consolidate either of these entities and 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 2019 is not recorded in the Company’s 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 December 28, 2019.
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 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.
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.
During 2019 and 2017, the Company recognized $60 million and $52 million as licensing gain associated with the Licensed IP. During 2018, the Company recognized $86 million of IP-related revenue upon completion of all technology milestones under the Development and IP agreement.
The Company’s receivable from the THATIC JV for the above agreements was $13 million and $18 million as of December 28, 2019 and December 29, 2018, respectively, included in Prepayment and receivables—related parties on its consolidated balance sheets.
In June 2019, the U.S. Commerce Department’s Bureau of Industry and Security added certain Chinese entities to the Entity List, including THATIC and the THATIC JV. The Company is complying with U.S. law pertaining to the Entity List designation.
The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef