Summary:
The article reported by CBC News mentions that Google has been selected to make the first bid for Nortel's entire portfolio of patents after the bankruptcy of Nortel Networks Corp. Google has bid $900 million to buy 6000 patents held by Nortel. The first bid made by Google sets the lower limits for the auction, and it prevents the bids going too low. The portfolio of patents covers most aspects of telecommunication. Therefore, lots of other companies, such as waterloo, Ont.-based Research In Motion, BlackBerry, and IBM, are interested in buying the patents. The patents are expected to fetch $1.4 billion.US. In addition, Duncan Stewart, director of research for technology at Deloitte, expresses his feeling of sadness to all Canadian, and he hopes the technologists who developed those patented technologies will continue on innovating in Canada.
Connection:
The connection to Chapter 5 would be the three types of activities on the cash flow statement. In this case, we focus on investing activities and financing activities. Investing activities typically involve balance sheet accounts classified as long-term assets. The portfolio of patents mentioned in the article is a form of intangible long-term assets. Assuming Google successfully buys the portfolio from Nortel for $900 million, this process is considered as investing activity. Moreover, another connection would be the effects of different transactions on the cash flow statement. The acquisition of the patents held by Nortel would result in an outflow of cash related to investing activities, so the cash used for investing in the fiscal year of 2011 would increase by $900 million. The whole process of purchasing the patents will reduce the total cash owned by the company, but it would potentially bring more cash flow in the future. If the purchase of the patents were successful, the company would need to obtain more money to stabilize the total amounts of cash owned by the company. Therefore, Google might need to issue more shares in order to get more cash, and this would result in an inflow of cash related to financing activities.
Reflection:
In my opinions, bidding for the entire portfolio of patents held by Nortel would be beneficial since the patents can boost up the company's capability to maximize its profit. Long-term investment such as the patents mentioned in this case would bring more opportunities to the company. Even though this kind of investment will result in an outflow of cash initially, it would eventually help the company to perform better. Moreover, I think Google should allocate more money to investing activities. Proper amounts of cash outflow for investing is beneficial to the company. However, if the outflow of cash for investing activities is too high, the overall performance of the company will be affected dramatically.
Google's bid of $900 million for the 6,000 patents of Nortel Networks Corp. may seem like a massive amount to us but to a large corporation such as Google, $900 million is a measly figure. Google recorded revenues of in excess of $29.0 billion in 2010 and is projected to continue to grow far into the future. Their purchase of these patents will open many options for them seeing as they will be legally allowed to expand into new sectors without the fear of lawsuits against them. This long-term investment will require a large initial outflow of cash but it will pay for itself and bring in more cash in the long run. All in all, this is another sound investment by Google.
ReplyDeleteI agree with what you said. The bidding for the patents held by Nortel will be beneficial to the company. With investment from companies, such as Google, Nortel will be capable of maximizing its profit. In addition to that, this long-term investment will opened up more opportunities for both Nortel and Google. Though this long-term investment will require a large initial outflow of cash from Google, the investment will generate enough revenue to pay for itself, and maybe even bring in more revenue for Google. With the purchase of the patents, Google will be able to expand into the telecommunication sector legally.
ReplyDeleteI agree with the statement that Kevin made on the blog. Google’s acquisition of Nortel patents will be beneficial to the future. It is a really efficient way to increase company’s profit although this would have a negative effect at the beginning, but it would increase the profit rapidly later. The acquisition provides many ways for Google to expand its company. On the other hand, having proper amount of cash is also very important to company, especially when a company acquired another company because cash will be inadequate after acquisition.
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