Intangible Assets and Goodwill

In the fourth quarter of 2017 and 2016, 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, 2017, the fair value of the MID reporting unit, with $66.6 million of goodwill, exceeded the carrying value of its net assets by approximately 270% and the fair value of the RSD reporting unit, with $143.0 million of goodwill, exceeded the carrying value of its net assets by approximately 155%. Key assumptions used to determine the fair value of the MID and RSD reporting units at December 31, 2017, 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, 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.

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, 2017 and December 31, 2016:



Reportable Segment:	December 31, 2016		Addition to Goodwill (1)		Impairment Charge of Goodwill		Effect of Exchange Rates (2)		December 31, 2017
	(In thousands)
MID	$	66,643	$	—	$	—	$	—	$	66,643
RSD	138,151		803		—		4,064		143,018
Total	$	204,794	$	803	$	—	$	4,064	$	209,661

(1) During the first quarter of 2017, the Company corrected an immaterial error related to an overstatement in prepaids and other current assets that originated in 2016.

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



	As of December 31, 2017
Reportable Segment:	Gross Carrying Amount		Accumulated Impairment Losses			Net Carrying Amount
	(In thousands)
MID	$	66,643	$	—		$	66,643
RSD	143,018		—			143,018
Other	21,770		(21,770		)	—
Total	$	231,431	$	(21,770	)	$	209,661



Reportable Segment:	December 31, 2015		Addition to Goodwill (1)		Impairment Charge of Goodwill		Effect of Exchange Rates (2)			December 31, 2016

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 18, “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

MID	$	66,643	$	—		$	66,643
RSD	138,151		—			138,151
Other	21,770		(21,770		)	—
Total	$	226,564	$	(21,770	)	$	204,794

Intangible Assets

The components of the Company’s intangible assets as of December 31, 2017 and December 31, 2016 were as follows:



		As of December 31, 2017
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(In thousands)
Existing technology	3 to 10 years	$	258,008	$	(191,554	)	$	66,454
Customer contracts and contractual relationships	1 to 10 years	68,794		(48,626		)	20,168
Non-compete agreements and trademarks	3 years	300		(300		)	—
In-process research and development	Not applicable	5,100		—			$	5,100
Total intangible assets		$	332,202	$	(240,480	)	$	91,722



		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 18, “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 18, “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.

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 may 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 2017 and 2016, the Company received $3.6 million and $5.9 million related to the favorable contracts, respectively. As of December 31, 2017 and 2016, the net balance of the favorable contract intangible assets was $1.7 million and $3.6 million, respectively. The estimated useful life is based on expected payment dates related to the favorable contracts.

During the year ended December 31, 2017, the Company acquired patents related to its memory technology for an immaterial amount. The Company did not purchase any intangible assets in 2016, except for those intangible assets acquired in the acquisitions during 2016. See Note 18, “Acquisitions” for further details.

During the years ended December 31, 2017, 2016 and 2015, the Company did not sell any intangible assets.

Amortization expense for intangible assets for the years ended December 31, 2017, 2016, and 2015 was $42.0 million, $37.1 million, and $25.1 million, respectively. The estimated future amortization expense of intangible assets as of December 31, 2017 was as follows (amounts in thousands):



Years Ending December 31:	Amount
2018	$	30,382
2019	19,942
2020	19,220
2021	12,683
2022	1,331
Thereafter	3,064
Total amortizable purchased intangible assets	86,622
In-process research and development	5,100
Total intangible assets	$	91,722