Goodwill

6 Months Ended

Apr. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

The following table represents the change in carrying value of goodwill, by reportable segment, for six months ended April 30, 2020:


	Compute		HPC & MCS		Storage		Intelligent Edge		Financial Services		Total
	In millions
Balance at October 31, 2019	$	7,532	$	4,478	$	4,158	$	1,994	$	144	$	18,306
Goodwill impairment	—		(865)		—		—		—		(865)
Goodwill adjustments	—		2		1		—		—		3
Balance at April 30, 2020	$	7,532	$	3,615	$	4,159	$	1,994	$	144	$	17,444

Effective at the beginning of the first quarter of fiscal 2020, the Company's operations were realigned into seven segments for financial reporting purposes. The Company's reporting units containing goodwill are consistent with the reportable segments identified in Note 2, "Segment Information". As a result of this realignment, the Company performed an interim quantitative goodwill impairment test for the new segments as of November 1, 2019, which did not result in any goodwill impairment charges.

On March 31, 2020, due to the macroeconomic impacts of COVID-19 on the Company's current and projected future results of operations, the Company determined that an indicator of potential impairment existed to require an interim quantitative goodwill impairment test for its reporting units.

Based on the results of this interim quantitative impairment test, the fair value of the HPC & MCS reporting unit was below the carrying value of net assets assigned to HPC & MCS. The decline in the fair value of the HPC & MCS 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 & MCS reporting unit was based on 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 we consider 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 our 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 depending on 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 & MCS reporting unit and concluded that such assets were not impaired. The quantitative goodwill impairment test indicated that the carrying value of the HPC & MCS reporting unit exceeds 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. The HPC & MCS reporting unit has a remaining goodwill allocation of $3.6 billion as of April 30, 2020.

While the other reporting units were negatively impacted by COVID-19, their fair values continued to exceed the carrying value of their net assets and did not result in impairment. In order to evaluate the sensitivity of the estimated fair value of other reporting units for the quantitative goodwill impairment test, the Company applied a hypothetical 10% reduction to the estimated fair value of each of these other reporting units. Based on the results of this hypothetical 10% reduction to the estimated fair value, each of these other reporting units had an excess of fair value over carrying value of their net assets. However, should economic conditions deteriorate further or remain depressed for a prolonged period of time, estimates of future cash flows for each of our 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 & MCS reporting unit. Further impairment charges, if any, may be material to our results of operations and financial position. See Part II, Item 1A, Risk Factors for a discussion of the potential impacts of COVID-19 on the fair value of our assets.

The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.