Intel sold certain assets of its communications and application processor business in November 2006, to Marvell Technology Group and entered into a supply agreement in which Marvell committed to purchase a minimum number of wafers from Intel through June 2008. According to its 10-Q filing, Marvell concurrently entered into the supply agreement with Intel, and under that agreement, Intels pricing to Marvell was, in almost all cases, greater than comparable prices available in the market. The question to ask is, Why would Marvell agree to pay Intel more than market price? The concurrent nature of the agreement holds the key to the answer. Marvell essentially underpaid for the acquisition of Intels communications business while agreeing to overpay for the supplies. From Marvells perspective, however, the transaction does not seem favorable, at least on first glance, because paying above-market prices would negatively affect its margins. Marvell could find found a way around this problem by

		Recording a liability representing the difference between Intel prices and comparable market prices for those products for which Marvell had a contractual obligation.
		Created an asset that will be reversed into earnings over time to offset the higher cost of goods sold.
		Created a liability that reversed into earnings over time to offset the higher cost of goods sold.
		Total income over all periods is the same.
		There will be a gain on acquisition as it paid lower than the fair value.