Equity Method Investments



As of	November 29, 2012				August 30, 2012
	Investment Balance		Ownership Percentage		Investment Balance		Ownership Percentage
Inotera	$	326	39.7	%	$	370	39.7	%
Other	17		Various		19		Various
	$	343			$	389

We recognize our share of earnings or losses from these entities under the equity method, generally on a two-month lag. Equity in net loss of equity method investees, net of tax, included the following:



Quarter ended	November 29, 2012			December 1, 2011
Inotera	$	(53	)	$	(63	)
Other	1			(11		)
	$	(52	)	$	(74	)

Our maximum exposure to loss from our involvement with our equity method investments that were VIEs was $276 million and primarily included our Inotera investment balance as well as related translation adjustments in accumulated other comprehensive income and receivables, if any. We may also incur losses in connection with our rights and obligations to purchase a portion of Inotera's wafer production capacity under a supply agreement with Inotera.

Inotera

We have partnered with Nanya in Inotera, a Taiwanese DRAM memory company, since the first quarter of 2009. As of November 29, 2012, we held a 39.7% ownership interest in Inotera, Nanya held a 26.3% ownership interest and the remaining ownership interest was publicly held.

The net carrying value of our initial and subsequent investments was less than our proportionate share of Inotera's equity at the time of those investments. These differences are being amortized as a net credit to earnings through equity in net loss of equity method investees (the "Inotera Amortization"). In the first quarter of 2012, we recognized $12 million of Inotera Amortization and as of August 30, 2012, the remaining amount of unrecognized Inotera Amortization was not significant.

Due to significant market declines in the selling prices of DRAM, Inotera incurred net losses of $410 million for its nine-month period ended September 30, 2012 and $737 million for its fiscal year ended December 31, 2011. Also, Inotera's current liabilities exceeded its current assets by $1.8 billion as of September 30, 2012, which exposes Inotera to liquidity risk. As of June 30, 2012, Inotera was not in compliance with certain loan covenants, and had not been in compliance for the past several years. Inotera received a waiver from complying with the June 30, 2012 financial covenants. Inotera's management has developed plans to improve its liquidity, but there can be no assurance that Inotera will be successful in improving its liquidity, which may result in its lenders requiring repayment of such loans during the next year.

As of November 29, 2012, based on the closing trading price of Inotera's shares in an active market, the market value of our equity interest in Inotera was $167 million, which was below our net carrying value of $270 million. The net carrying value is our investment balance less cumulative translation adjustments in accumulated other comprehensive income (loss). As of November 29, 2012 and August 30, 2012, there were gains of $56 million and $49 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera. We evaluated our investment in Inotera and concluded that the decline in the market value below carrying value was not an other-than-temporary-impairment for a number of reasons including: (1) the market value increased above our carrying value subsequent to the end of the first quarter of 2013 and (2) the difference between market value and carrying value existed for less than two months.

We have a supply agreement with Inotera, under which Nanya is also a party, for the rights and obligations to purchase 50% of Inotera's wafer production capacity (the "Inotera Supply Agreement"). We have rights to receive a higher share of Inotera's 30-nanometer output when it becomes available. Our cost of wafers purchased under the Inotera Supply Agreement is based on a margin-sharing formula among Nanya, Inotera and us. Under such formula, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers acquired from Inotera. Under the Inotera Supply Agreement, we purchased $201 million and $156 million of DRAM products in the first quarters of 2013 and 2012, respectively. In the first quarter of 2012, we recognized losses on our purchase commitment under the Inotera Supply Agreement of $40 million.

Under a cost-sharing arrangement, we generally share DRAM development costs with Nanya. As a result of the cost-sharing arrangement, our research and development ("R&D") costs were reduced by $15 million and $37 million in the first quarters of 2013 and 2012, respectively. In addition, we recognized royalty revenue from Nanya of $2 million and $3 million in the first quarters of 2013 and 2012, respectively, for sales of DRAM products manufactured by or for Nanya on process nodes of 50nm or higher.

We are currently in discussions with Nanya and Inotera regarding potential changes to our agreements. Such potential changes may include us receiving a significantly higher share of Inotera's output than our current share and an adjustment to the pricing formula. Additionally, our share of DRAM R&D costs may increase.

Other

Transform: In the second quarter of 2010, we acquired a 50% interest in Transform, a developer, manufacturer and marketer of photovoltaic technology and solar panels, from Origin. As of November 29, 2012, we and Origin each held a 50% ownership interest in Transform. As a result of the ongoing challenging global environment in the solar industry and unfavorable worldwide supply and demand conditions, in May 2012 the Board of Directors of Transform approved a liquidation plan. As of August 30, 2012, Transform's operations were substantially discontinued.

Aptina: Other equity method investments included a 30.2% equity interest in Aptina. The amount of cumulative loss we recognized from our investment in Aptina through the second quarter of 2012 reduced our investment balance to zero and we ceased recognizing our proportionate share of Aptina's losses.

We manufacture components for CMOS image sensors for Aptina under a wafer supply agreement. For the first quarters of 2013 and 2012, we recognized net sales of $61 million and $94 million, respectively, from products sold to Aptina, and cost of goods sold of $81 million and $94 million, respectively.