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Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Intangible Assets and Goodwill

In the fourth quarter of 2016 and 2015, the Company performed its annual goodwill impairment analysis for the MID and RSD reporting units, which are the only reporting units with goodwill. The Company estimated the fair value of the reporting units using the income approach which was determined using Level 3 fair value inputs. The utilization of the income approach to determine fair value requires estimates of future operating results and cash flows discounted using an estimated discount rate. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions.

As of December 31, 2016, the fair value of the MID reporting unit, with $66.6 million of goodwill, exceeded the carrying value of its net assets by approximately 299% and the fair value of the RSD reporting unit, with $138.2 million of goodwill, exceeded the carrying value of its net assets by approximately 89%. Key assumptions used to determine the fair value of the MID and RSD reporting units at December 31, 2016, were the revenue growth rates for the forecast period and terminal year, terminal growth rates and discount rates. Certain estimates used in the income approach involve information for new product lines with limited financial history and developing revenue models which increase the risk of differences between the projected and actual performance. The discount rate of 12% for MID and 16.5% for RSD is based on the reporting units’ overall risk profile relative to other guideline companies, market adoption of the Company's technology, the reporting units’ respective industry as well as the visibility of future expected cash flows. The terminal growth rate applied to determine fair value for both reporting units was 3%, which was based on historical experience as well as anticipated economic conditions, industry data and long term outlook for the business. These assumptions are inherently uncertain.

As of December 31, 2015, the fair value of the MID reporting unit, with $19.9 million of goodwill, exceeded the carrying value of its net assets by approximately 226% and the fair value of the RSD reporting unit, with $97.0 million of goodwill, exceeded the carrying value of its net assets by approximately 45%. Key assumptions used to determine the fair value of the MID and RSD reporting units at December 31, 2015, were the revenue growth rates for the forecast period and terminal year, terminal growth rates and discount rates. Certain estimates used in the income approach involve information for new product lines with limited financial history and developing revenue models which increase the risk of differences between the projected and actual performance. The discount rate of 13% for MID and 20% for RSD is based on the reporting units’ overall risk profile relative to other guideline companies, market adoption of the Company's technology, the reporting units’ respective industry as well as the visibility of future expected cash flows. The terminal growth rate applied to determine fair value for both reporting units was 3%, which was based on historical experience as well as anticipated economic conditions, industry data and long term outlook for the business. These assumptions are inherently uncertain.

It is reasonably possible that the businesses could perform significantly below the Company's expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company's ability to meet its projected results, which could cause the goodwill in any of its reporting units or intangible assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company's future financial results. If the reporting units are not successful in commercializing new business arrangements, if the businesses are unsuccessful in signing new license agreements or renewing its existing license agreements, or if the Company is unsuccessful in managing its costs, the revenue and income for these reporting units could adversely and materially deviate from their historical trends and could cause goodwill or intangible assets to become impaired. If the Company determines that its goodwill or intangible assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.

Goodwill

The following tables present goodwill information for each of the reportable segments for the years ended December 31, 2016 and December 31, 2015:

Reportable Segment:	December 31, 2015				Addition to Goodwill (1)				Impairment Charge of Goodwill				Effect of Exchange Rates (2)			December 31, 2016
	(In thousands)
MID	$	19,905			$	46,738			$	—			—			$	66,643
RSD	96,994				46,903				—				(5,746	)		138,151
Total	$	116,899			$	93,641			$	—			(5,746	)		$	204,794

(1) The additions to goodwill are a result of the acquisitions of Smart Card Software Limited (“SCS”) during the first quarter of 2016, and Inphi's Memory Interconnect Business and the assets of the Snowbush IP group during the third quarter of 2016. See Note 19, “Acquisitions” for further details.

(2) Effect of exchange rates relates to foreign currency translation adjustments for the period.

	As of December 31, 2016
Reportable Segment:	Gross Carrying Amount				Accumulated Impairment Losses				Net Carrying Amount
	(In thousands)
MID	$	66,643			$	—			$	66,643
RSD	138,151				—				138,151
Other	21,770				(21,770		)		—
Total	$	226,564			$	(21,770	)		$	204,794

Reportable Segment:	December 31, 2014				Addition to Goodwill				Impairment Charge of Goodwill				December 31, 2015
MID	$	19,905			$	—			$	—			$	19,905
RSD	96,994				—				—				96,994
Total	$	116,899			$	—			$	—			$	116,899

	As of December 31, 2015
Reportable Segment:	Gross Carrying Amount				Accumulated Impairment Losses				Net Carrying Amount
MID	$	19,905			$	—			$	19,905
RSD	96,994				—				96,994
Other	21,770				(21,770		)		—
Total	$	138,669			$	(21,770	)		$	116,899

Intangible Assets

The components of the Company’s intangible assets as of December 31, 2016 and December 31, 2015 were as follows:

			As of December 31, 2016
	Useful Life		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
			(In thousands)
Existing technology (1)	3 to 10 years		$	256,656			$	(156,577	)		$	100,079
Customer contracts and contractual relationships (1)	1 to 10 years		65,109				(37,900		)		27,209
Non-compete agreements and trademarks	3 years		300				(300		)		—
In-process research and development (2)	Not applicable		5,100				—				$	5,100
Total intangible assets			$	327,165			$	(194,777	)		$	132,388

(1) Includes intangible assets from the acquisitions of SCS, Inphi's Memory Interconnect Business, and the assets of the Snowbush IP group. See Note 19, “Acquisitions” for further details.

(2) Includes intangible assets from the acquisitions of Inphi's Memory Interconnect Business and the assets of the Snowbush IP group. See Note 19, “Acquisitions” for further details. The in-process research and development assets are accounted for as indefinite-lived intangible assets until the underlying projects are completed or abandoned.

			As of December 31, 2015
	Useful Life		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
			(In thousands)
Existing technology	3 to 10 years		$	185,321			$	(127,028	)		$	58,293
Customer contracts and contractual relationships	1 to 10 years		31,093				(25,120		)		5,973
Non-compete agreements	3 years		300				(300		)		—
Total intangible assets			$	216,714			$	(152,448	)		$	64,266

During the fourth quarter of 2016, the Company recorded a charge of $18.3 million related to the impairment of some of the in-process research and development intangible asset of the original $21.8 million acquired in the acquisition of the assets of the Snowbush IP group. The impairment of this intangible asset resulted from a delay in the market served by this initiative. This delay will not impact the short-term revenue expectations but will impact the Company's revenue expectations several years into the future.

Included in customer contracts and contractual relationships are favorable contracts which are acquired software and service agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduce the favorable contract intangible asset. During 2016 and 2015, the Company received $5.9 million and $0.1 million related to the favorable contracts, respectively. As of December 31, 2016 and 2015, the net balance of the favorable contract intangible assets was $3.6 million and zero, respectively. The estimated useful life is based on expected payment dates related to the favorable contracts.

The Company did not purchase any intangible assets in 2016 except for those intangible assets acquired in the acquisitions during the year. See Note 19, “Acquisitions” for further details. The Company did not purchase any intangible assets in 2015 and 2014.

During the years ended December 31, 2016 and 2015, the Company did not sell any intangible assets. During the year ended December 31, 2014, the Company sold portfolios of its intellectual property covering wireless and other technologies for $4.4 million and the related gain was recorded as gain from sale of intellectual property and revenue in the consolidated statements of operations.

Amortization expense for intangible assets for the years ended December 31, 2016, 2015, and 2014 was $37.1 million, $25.1 million, and $26.6 million, respectively. The estimated future amortization expense of intangible assets as of December 31, 2016 was as follows (amounts in thousands):

Years Ending December 31:	Amount
2017	$	44,391
2018	28,880
2019	19,144
2020	18,505
2021	12,241
Thereafter	9,227
	$	132,388

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- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 30
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16373-109275

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 30
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16265-109275

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 30
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16323-109275

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267

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