Goodwill and Intangible Assets

12 Months Ended

Oct. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill and related changes in the carrying amount by reportable segment were as follows:


	Compute		HPC & AI		Storage		Intelligent Edge		Financial Services		Corporate Investments & Other		Total
	In millions
Balance at October 31, 2019 (1)(2)	$	7,532	$	4,478	$	3,945	$	1,994	$	144	$	213	$	18,306
Goodwill from acquisitions	—		—		—		572		—		—		572
Impairment of goodwill	—		(865)		—		—		—		—		(865)

Goodwill adjustments	—		3		1		—		—		—		4
Balance at October 31, 2020 (1)(2)	7,532		3,616		3,946		2,566		144		213		18,017
Goodwill from acquisitions	—		86		214		—		—		—		300

Goodwill adjustments	—		—		—		(11)		—		—		(11)
Balance at October 31, 2021 (1)(2)	$	7,532	$	3,702	$	4,160	$	2,555	$	144	$	213	$	18,306

(1)As a result of the organizational realignments which were effective as of November 1, 2020, (described in Note 1, "Overview and Summary of Significant Accounting Policies"), $213 million of goodwill was reallocated from the Storage segment to the Software reporting unit within Corporate Investments and Other as of the beginning of the period using a relative fair value approach.

(2)Goodwill is net of accumulated impairment losses of $953 million. Of this amount, $865 million related to HPC & AI which was recorded during the second quarter of fiscal 2020 and $88 million related to the CMS reporting unit within Corporate Investments and Other was recorded during fiscal 2018. There is no goodwill remaining in the CMS reporting unit.

Goodwill Impairments

Goodwill is tested for impairment at the reporting unit level. As of October 31, 2021, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information" to the Consolidated Financial Statements, with the exception of Corporate Investments and Other which contains three reporting units, Software, CMS and A&PS.

Based on the results of the Company's interim and annual impairment tests in fiscal 2021, the Company determined that no impairment of goodwill existed. As of our annual test date, performed at the beginning of the fourth quarter, the excess of fair value over carrying amount for our reporting units ranged from approximately 8% to 133% of the respective carrying amounts. In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, the Company applied a hypothetical 10% decrease to the fair value of each reporting unit. Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, with the exception of the HPC & AI reporting unit.

As of the annual test date, the HPC & AI reporting unit had goodwill of $3.7 billion and an excess of fair value over carrying value of net assets of 8%. The fair value of the HPC & AI reporting unit is based on a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. The HPC & AI business is facing challenges on the current and projected future results as revenue growth is dependent on timing of delivery and related achievement of customer acceptance milestones. If the Company is not successful in addressing these challenges, the projected revenue growth rates or operating margins could decline resulting in a decrease in the fair value of the HPC & AI reporting unit. The fair value of the HPC & AI reporting unit could also be negatively impacted by changes in its weighted average cost of capital, changes in management's business strategy or significant and sustained declines in the stock price, which could result in an indicator of impairment.

In addition, should economic conditions deteriorate or remain depressed for a prolonged period of time, estimates of future cash flows for each of the Company's reporting units may be insufficient to support the carrying value and the goodwill assigned to them, requiring impairment charges, including additional impairment charges for the HPC & AI reporting unit. Further impairment charges, if any, may be material to the results of operations and financial position.

Based on the results of the Company’s annual impairment test in fiscal 2020 the Company determined that no impairment of goodwill existed.

Based on the results of the Company’s interim impairment test in the second quarter of fiscal 2020, it was concluded that the fair value of the HPC & AI reporting unit was below the carrying value of net assets assigned to HPC & AI. The decline in the fair value of the HPC & AI reporting unit resulted from macroeconomic impacts of COVID-19 which lowered the projected revenue growth rates and profitability levels of the reporting unit. The fair value of the HPC & AI reporting unit was based on the above described methodology for the annual test which was a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows which the Company considers to be a level 3 unobservable input in the fair value hierarchy. The Company prepares cash flow projections based on management's estimates of revenue growth rates and operating margins, taking into consideration the historical performance and the current macroeconomic industry and market conditions. The Company bases the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, the Company estimates fair value based on market multiple earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. The Company weights the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit.

Prior to the quantitative goodwill impairment test, the Company tested the recoverability of long-lived assets and other assets of the HPC & AI reporting unit and concluded that such assets were not impaired. The quantitative goodwill impairment test indicated that the carrying value of the HPC & AI reporting unit exceeded its fair value by $865 million. As a result, the Company recorded a partial goodwill impairment charge of $865 million in the second quarter of fiscal 2020.

Intangible Assets

Intangible assets comprise:


	As of October 31, 2021						As of October 31, 2020
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	In millions
Customer contracts, customer lists and distribution agreements	$	472	$	(175)	$	297	$	429	$	(163)	$	266
Developed and core technology and patents	1,187		(537)		650		1,267		(627)		640
Trade name and trade marks	144		(73)		71		141		(50)		91
In-process research and development	4		—		4		106		—		106
Total intangible assets	$	1,807	$	(785)	$	1,022	$	1,943	$	(840)	$	1,103

For fiscal 2021, the decrease in gross intangible assets was due primarily to $409 million of intangible assets which became fully amortized and were eliminated from gross intangible assets and accumulated amortization, partially offset by $273 million of purchases related to acquisitions.

For fiscal 2021, the Company reclassified in-process research and development assets acquired of $113 million to developed and core technology and patents as the projects were completed, and began amortization. For fiscal 2020, no in-process research and development assets were completed.

As of October 31, 2021, the weighted-average remaining useful lives of the Company's finite-lived intangible assets were as follows:


Finite-Lived Intangible Assets			Weighted-Average Remaining Useful Lives
			In years
Customer contracts, customer lists and distribution agreements			5
Developed and core technology and patents			4
Trade name and trade marks			3

As of October 31, 2021, estimated future amortization expense related to finite-lived intangible assets was as follows:


Fiscal year	In millions
2022	$	291
2023	265
2024	207
2025	95
2026	79
Thereafter	81
Total	$	1,018