Equity Interest Purchase Agreement - ATMP Joint Venture |
6 Months Ended |
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Jun. 30, 2018 | |
| Equity Method Investments and Joint Ventures [Abstract] | |
| Equity Interest Purchase Agreement - ATMP Joint Venture |
Equity Interest Purchase Agreement - ATMP Joint Venture
In April 2016, the Company and certain of its subsidiaries completed the sale of a majority of the equity interests in Suzhou TF-AMD Semiconductor Co., Ltd. (formerly, AMD Technologies (China) Co., Ltd.), and TF-AMD Microelectronics (Penang) Sdn. Bhd. (formerly, Advanced Micro Devices Export Sdn. Bhd.), to affiliates of Tongfu Microelectronics Co., Ltd. (formerly, Nantong Fujitsu Microelectronics Co., Ltd.) (TFME), a Chinese joint stock company, to form two joint ventures (collectively, the ATMP JV). As a result of the sale, TFME’s affiliates own 85% of the equity interests in the ATMP JV while certain of the Company’s subsidiaries own the remaining 15%. 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 June 30, 2018 and December 30, 2017, the carrying value of the Company’s investment in the ATMP JV was approximately $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 back to the ATMP JV of the inventory under inventory management is reported within purchases and resales with the ATMP JV and does not impact the Company’s Statement of Operations.
The Company’s total purchases from the ATMP JV during the three and six months ended June 30, 2018 amounted to approximately $143 million and $278 million, respectively. The Company’s total purchases from the ATMP JV during the three and six months ended July 1, 2017 amounted to approximately $105 million and $201 million, respectively. As of June 30, 2018 and December 30, 2017, the amount payable to the ATMP JV was $206 million and $171 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 30, 2018 amounted to approximately $13 million and $19 million, respectively, and there were no resales back to the ATMP JV for the comparative periods of 2017. As of June 30, 2018 and December 30, 2017, the Company had receivables from ATMP JV of $16 million and $3 million, respectively, included in Prepayment and other receivables—related parties on the Company’s condensed consolidated balance sheets.
During 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. During the three and six months ended July 1, 2017, the Company recorded $3 million and $5 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.
Equity Joint Venture
In February 2016, the Company and Higon Information Technology Co., Ltd. (formerly, Tianjin Haiguang Advanced Technology Investment 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.
In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV for a total of approximately $293 million in license fee 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 also provided certain engineering and technical support to the THATIC JV in connection with the product development. In March 2017, the Company entered into a development and intellectual property agreement (Development and IP) with 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. 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 recognized income related to the Licensed IP over the period commencing upon delivery of the first Licensed IP milestone through the date of the milestone that required the Company’s continuing involvement in the product development process, which was completed at the end of the second quarter of 2017. Royalty payments will be recognized in income once earned. The Company classifies Licensed IP income and royalty income, associated with the February 2016 agreement, as licensing gain within other operating income. The Company will recognize revenue associated with the March 2017 Development and IP agreement upon the delivery of the IP.
During the three and six months ended June 30, 2018, the Company recognized zero as licensing gain associated with the Licensed IP for both periods, and zero associated with other services for both periods. No royalty income was recognized by the Company during the three and six months ended June 30, 2018 under the Licensed IP or Development and IP agreements. During the three and six months ended July 1, 2017, the Company recognized $25 million and $52 million, respectively, as licensing gain associated with the Licensed IP, and zero associated with other services for both periods. During the three and six months ended July 1, 2017, no revenue was recognized for both periods, associated with the Development and IP agreement. No royalty income was recognized by the Company during the three and six months ended July 1, 2017 under both the Licensed IP and Development and IP agreements.
The Company’s share in the net losses of the THATIC JV for the three and six months ended June 30, 2018 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 June 30, 2018. The Company’s receivable from the THATIC JV for these agreements was $5 million and $3 million as of June 30, 2018 and December 30, 2017, respectively, included in Accounts receivable, net and Prepayment and other receivables—related parties on its condensed consolidated balance sheets. As of June 30, 2018, the total assets and liabilities of the THATIC JV were not material.
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