The Looming Global Crash: Apple, Google And Microsoft
Could the world be on the cusp of its greatest financial collapse [i] [ii] [iii] [iv]? Here are what aspects of the most recent annual reports of Apple, Microsoft and Google might mean in a looming global crash of our financial system:
Let’s Look At Apple
Apple’s 10-K 26-September 2015 Annual Report v states on page 22 that Apple’s net sales were approximately 234 billion USDs, its net income was about 53.4 billion USDs and its total long-term debt was around 56 billion USDs . Moreover, as roughly 87% of Apple’s business in 2015 was dependent on iPhone, iPad, and Mac sales (see table 1 below), it follows Apple is mainly a hardware company; this assertion resonates with Bott (2016)[vi]. Also, even though the markets are highly competitive [page 5], net sales have consistently increased since 2011 [page 22], net sales have increased in nearly all regions from 2013 [page 24] and iPhone sales in 2015 grew by 52% worldwide [page 24].
|Net Sales by Product||(In millions of US dollars)|
|iPad [NB iPad sales plunged 23% in 2015]||23,227|
|Services: Internet Services [i.e. iTunes Store, App Store, Mac App Store, iBooks Store and Apple Music], iCloud, AppleCare, Apple Pay.||19,909|
|Other Products i.e. Accessories, Apple TV, Apple Watch, iPod.||10,067|
Table 1: Net Sales by Product from Apple’s 2015 Annual Report [page 24]
However, Apple, whose total assets are claimed in 2015 to be about 290 billion USDs, and whose cash position is relatively small at roughly 11.4 billion USDs [page 22], appears to be heavily and increasingly invested in ‘paper cash equivalents and marketable securities’ [see table 2].
|Cash, Cash Equivalents and Marketable Securities||Adjusted Cost (in millions of US dollars):|
|Cash--(NB is this cash at risk of a bail in?)||11,389|
|Money market funds||1,798|
|U.S. Treasury securities||34,902|
|U.S. agency securities||5,864|
|Non-U.S. government securities||6,356|
|Certificates of deposit and time deposits||4,347|
|Mortgage- and asset-backed securities||16,121|
Table 2: Cash, Cash Equivalents and Marketable Securities [page 49]
So what would happen to 'all that paper’, in the event of a collapse of our financial system? Interestingly, Apple state openly there may be significant risks associated with its investments; for instance on page 16 it is asserted that:
Credit ratings and pricing of the Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of the Company’s cash, cash equivalents and marketable securities may fluctuate substantially. [Apple Inc. 2015 Form 10-K]
Additionally on Page 10 it is held that:
In the event of financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be tightening in the credit markets, low liquidity and extreme volatility in fixed income, credit, currency and equity markets. This could have a number of effects on the Company’s business, including the insolvency or financial instability of outsourcing partners or suppliers or their inability to obtain credit to finance development and/or manufacture products resulting in product delays; inability of customers, including channel partners, to obtain credit to finance purchases of the Company’s products; failure of derivative counterparties and other financial institutions; and restrictions on the Company’s ability to issue new debt. [Apple Inc. 2015 Form 10-K]
In sum, in the event of a major global financial collapse a lot of Apple’s ‘paper’ investments might simply ‘blow up’ and Apple in such a scenario would very likely have to downsize dramatically, possibly discontinue many (more) products[vii] and/or possibly try to find alternative revenue-generating sources to survive.
One might also bear in mind that Apple is already contending with increasing competition from cheaper high-end Windows and Android smartphones and is contending with increasing competition from Google Play, which now has more apps than the iTunes App Store. Similarly, transferring data from Apple to Android or Windows[viii] is not generally felt to be ‘straightforward’. Correspondingly, please note that the competitive global smartphone market, which is estimated to hit 3.4 billion units by 2020[ix], is currently dominated by Android[x].
Let’s Look At Google
According to page 20 of Google’s most recent Annual Report, which is available here[xi], Google’s revenue at the end of 2014 was about 66 billion US dollars and its net income was roughly 14.5 billion US dollars. Moreover, as cited on page 48, out of the 66 billion USD revenue, the total advertising revenues were almost exactly 59 billion USDs and other revenues were approximately 7 billion USDs. It therefore follows that nearly 90% of Google’s revenues in 2014 were derived from advertising i.e. advertising from Google websites and advertising from Google network members' websites.
With regard to Google’s cash, cash equivalents’ and marketable securities’ position, which is about 64.4 billion USDs, Google also appears to be heavily invested in paper financial instruments [see table 3]. Additionally, even though Google’s total assets are roughly 131 billion USDs [page 43], if one were to look at the ‘rest’ of Google’s assets (i.e. excluding its cash, cash equivalents and marketable securities), one might speculate how much of them could be realized in the event of a serious financial collapse.
|Total cash, cash equivalents, and marketable securities page 54||In millions of USDs|
|Cash--(NB is this cash at risk of a bail in?)||9,909|
|Money market and other funds||4,428|
|U.S. government notes||18,276|
|Marketable equity securities||197|
|Money market and other funds||1,270|
|U.S. government agencies||4,575|
|Foreign government bonds||1,502|
|Corporate debt securities||7,300|
|Agency residential mortgage-backed securities||5,969|
Table 3: Cash, Cash Equivalents, and Marketable Securities (2014)
A number of ‘risks’ are cited in Google’s Annual Report too. An admission on page 16 of exposure to fluctuations in the market values of investments stands out:
Given the global nature of our business, we have investments both domestically and internationally. Credit ratings and market values of these investments can be negatively impacted by liquidity, credit deterioration or losses, financial results, or other factors. As a result, the value or liquidity of our cash equivalents and marketable securities could decline and result in a material impairment, which could materially adversely affect our financial condition and operating results. [Page 16 of Google’s Annual Report]
Furthermore, Google is already burdened with many other risks, for instance: (1) increased competition from general purpose search engines and information services (page 7); (2) dependency on remaining competitive and providing value to advertisers(page 7); (3) being subject to increased regulatory scrutiny which may negatively impact business (page 8); (4) being ‘regularly subject to claims, suits, government investigations, and other proceedings that may result in adverse outcomes’ (page 8); (5) ‘Privacy concerns relating to our technology could damage our reputation and deter current and potential users from using our products and services’ (page 12); (6) ‘Web spam and content farms could decrease our search quality, which could damage our reputation and deter our current and potential users from using our products and services’ (page 13); (7) ‘Internet access providers may be able to restrict, block, degrade, or charge for access to certain of our products and services, which could lead to additional expenses and the loss of users and advertisers’ (page 16); (8) ‘New technologies could block online ads, which would harm our business’ (page 16).
Google’s fairly lengthy list of discontinued products and services[xii] aka Google graveyard[xiii] (NB and most notably Google Glass[xiv]) suggests Google is under considerable pressure to improve its products and services without threatening its income (too much).
Even though it’s not easy to predict what products or services might be discontinued in a global financial collapse, I doubt the following will be affected: Android OS (open source), key Google related services (e.g. Gmail, Google Drive, Google Docs), important Open Source Development tools (e.g. Angular JS, Go), Google Maps, YouTube, Chrome Browser or Google Analytics.
Let’s Look At Microsoft
Microsoft’s 2015 Annual Report[xv] indicates in its selected financial data section that revenue was approximately 93.6 billion USDs and that net income was about 12.2 billion USDs. Cash, cash equivalents, and short-term investments are claimed to be about 96.5 billion USDs. Table 4 below, which indicates some of Microsoft’s major investment components, however shows Microsoft has a relatively small cash position and an extremely large ‘paper’ position, and, in particular, it has a substantial US government and agency securities’ position.
|Investment Components||Cost Basis(In millions of USDs)|
|Cash--(NB is this cash at risk of a bail in?)||3,679|
|U.S. government and agency securities||72,843|
|Foreign government bonds||5,477|
|Mortgage- and asset-backed securities||4,899|
|Corporate notes and bonds||7,192|
|Common and preferred stock||6,668|
Table 4: Selected major investment components from Microsoft’s 2015 Annual Report (Note 4)
Interestingly, it is stated in the Financial Condition’s section of the Microsoft Annual Report that:
Our short-term investments are primarily to facilitate liquidity and for capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities in order to diversify risk.
Also appertaining to the impairment of investment securities’ section, it is stated in a rather low-key way that:
Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.
Surely a major financial fiat-currency-dollar-hegemony breakdown would affect such investments perilously, and surely Microsoft would be forced to make huge changes to its revenue generation strategy and possibly discontinue some products/services. Furthermore, the increasing competition it is facing (i.e. as stated in its 2015 Annual report) could exacerbate this situation further.
Nevertheless, it is unlikely Microsoft will ‘go under’ with over 1.2 billion people using Microsoft Office globally, with over 400 million active users of using Outlook.com, with over 40% of Azure revenues coming from start-ups and independent software vendors, with its aim of going from 200 million devices running Windows 10 to 1 billion by 2018, and with over 340 million downloads of Office being done on iPhones, iPads and Android devices worldwide[xvi].
Microsoft is, by the same token, eyeing the Internet of Things’ (IoT) market, which is predicted[xvii] in 2020 to have 25 billion connected ‘things’ and a IoT worldwide market value of $7.2 trillion dollars; Azure is being promoted as a practical development platform.
Furthermore, Microsoft, with its empowerment vision for its mobile-first and cloud-first ecosystem world, has not become over-reliant on any ‘one thing’ in contradistinction to Google, which, as described above, has approximately 90% of its revenues coming from advertising, and Apple, which, as described above, has about 87% of its revenues coming from iPhone, iPad and Mac sales. Table 4 below presents the new 2015 three Microsoft business segments in millions of USDs [xviii].
|Productivity and Business Processes (26,431)||Intelligent Cloud (23,715)||More Personal Computing (42,953)|
|Office commercial products and services||Server products and services||Windows|
|Office consumer products and services||Enterprise services||Devices including Surface and Phone|
|Dynamics products and services||Gaming|
Table 4: Microsoft New 2015 Microsoft Business Segments in millions of USDs’ sources: Miglani (2015)[xix] and Microsoft 2015 Annual Report.
Some Possible Implications Of A Financial System Collapse For eLearning In Particular
- This would undoubtedly be a period of unprecedented chaos and likely disappointment for users of tech companies, and it is doubtful Apple, Google and Microsoft products and services would not be affected. The question would not be, will the cost of certain services/products (free, freemium [xx] or premium/paid) used by e-learning providers go up? They probably would. Rather, the question would be, what realistic options will there be out there for 'my' organization with its particular IT capabilities (i.e. if it still exists)? Important strategic e-learning questions for now could be: (1.) How much dependence on point-of-differentiation services is really required? (2.) How smooth would any transition period be in the event of a crash? (3.) Would the product and service vendor really be able to provide an amicable (i.e. affordable) e-learning solution in the event of a crash?
- As level of market penetration + access to data = money, one might assert there is more revenue collection potential from App Store, Google Play Store or Windows Store. Also, Microsoft could leverage its global reach to extract more income. However, this suggests costs of mobile learning in particular could increase.
- There may be bankruptcies, including that of some original equipment manufacturer (OEM) partners, distributors and resellers, online channels, and retail stores. There may also be massive potential downsizing, streamlining of operations, and radical discontinuity of products or services. Similarly, there could be a possible move to ‘cannibalize’ by acquisition or merger (NB as opposed to a ‘buy or destroy’ dilemma). eLearning may therefore become less reliable depending on what products or services are being used. This may also have ramifications for Learning Design and the implementation of new models of education. Cracks may appear in models [xxi] for funding open source [e.g. How would Moodle or Apache OpenOffice be affected?].
- Even though, government part or full ownership of the 'big three' might lead to lack of innovation and lack of user trust, government interference cannot be ruled out; there may also be (additional) charges levied on the Internet regionally.
- Start-up companies may attempt to exploit competitively new niches of such a market provided they can get funding. This may provide new opportunities for eLearning. Will this be a new start-up epoch?
- There might be a general culling of many Web2.0 learning technologies [xxii] during this period (NB especially of any that might be adversely affected by changes in Google/Microsoft /Apple products or services).
- Probable negative short/medium-term effect on e-learning growth predictions [xxiii] [xxiv].
About The Picture
There’s an orchid in Cyprus called Ophrys Flavomarginata that appears sometime between January and April in shady hilly regions near trees where goats have probably been [‘crapping’]. The orchid in the picture seems to be splitting her sides at something; I wonder whether she is laughing at the insanity of our modern-day fiat-monetary system [xxv] , or whether she is laughing at the specific people that allowed it to continue, or maybe, she is just laughing at the (a)pathetic masses that weren’t paying enough attention while the whole thing was happening.
NB, Alfred Einstein’s quote: ‘The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it’[xxvi].
[i] Alexander, C (2016) Some action-plan suggestions for Cyprus. In Depth Available on http://www.cceia.unic.ac.cy/index.php?option=com_content&task=view&id=498&Itemid=498
[ii] Pento, M. (2015) How the Great Depression 2.0 Will Soon Unfold. Retrieved from http://www.marketoracle.co.uk/Article53015.html
[iii] Roubini, N. (2016) Is the world economy having a 2008 moment? Retrieved from http://www.theguardian.com/business/2016/mar/02/is-the-world-economy-having-a-2008-moment-stock-markets-financial-crisis
[iv] Hayes, A. (2016) 6 Factors That Point to Global Recession in 2016. Retrieved from http://www.investopedia.com/articles/investing/071515/6-factors-point-global-recession-2016.asp
[v] Apple Inc. (2015, 26 September) 10-K Annual Report. Retrieved from http://investor.apple.com/financials.cfm or retrieved from http://files.shareholder.com/downloads/AAPL/1629712851x0x861262/2601797E-6590-4CAA-86C9-962348440FFC/2015_Form_10-K_As-filed_.pdf [direct link]
[vi] Bott, E. (2016) Google, Microsoft, Apple: Where does the money come from? Retrieved from http://www.zdnet.com/article/google-microsoft-apple-where-does-the-money-come-from/
[vii] Wikipedia: The free encyclopedia. (page last modified on 26 February, 2016,) List of products discontinued by Apple Inc. Retrieved from https://en.wikipedia.org/wiki/List_of_products_discontinued_by_Apple_Inc.
[viii] Egan, M. (2016) How to move from iPhone to Android: Transfer iPhone contacts to Android & move music from iPhone to Android. Retrieved from http://www.pcadvisor.co.uk/how-to/mobile-phone/how-move-from-iphone-android-guide-moving-from-ios-android-2016-3424758/
[ix] Danova, T. (2015) THE GLOBAL SMARTPHONE REPORT: These are the companies and regions that will drive the next billion smartphone shipments. Retrieved from http://www.businessinsider.com/global-smartphone-market-forecast-vendor-platform-growth-2015-6
[x] Villapaz, L. (2015) Apple's iOS Is Still Getting Crushed By Android In The US. Retrieved from http://www.ibtimes.com/apples-ios-still-getting-crushed-android-us-2130868
[xi] Google 2014 Annual Report. Retrieved from http://www.annualreports.com/Company/google-inc also available on http://www.sec.gov/Archives/edgar/data/1288776/000128877615000008/goog2014123110-k.htm
[xii] Wikipedia: The free encyclopedia. (page last modified on 4 March 2016) List of Google products. Retrieved from https://en.wikipedia.org/wiki/List_of_Google_products
[xiii] Kirk, C & Brady, H. (2014) The Google Graveyard. Retrieved from http://www.slate.com/articles/technology/map_of_the_week/2013/03/google_reader_joins_graveyard_of_dead_google_products.html
[xiv] Curtis, S. (2015) Google halts sales of Google Glass. Retrieved from http://www.telegraph.co.uk/technology/google/11349334/Google-halts-sales-of-Google-Glass.html
[xv] Microsoft Annual Report (2015) Retrieved from https://www.microsoft.com/investor/reports/ar15/index.html
[xvi] Microsoft (2016, February). By The Numbers. Retrieved from http://news.microsoft.com/bythenumbers/
[xvii] George, S. and Teixeira, S (2016) Internet Of Things Overview, Microsoft". [Office Mix presentation]. Retrieved from https://channel9.msdn.com/events/build/2015/2-652
[xviii] Microsoft News Center (2015, June). Satya Nadella email to employees on aligning engineering to strategy. Retrieved from http://news.microsoft.com/2015/06/17/satya-nadella-email-to-employees-on-aligning-engineering-to-strategy/
[xix] Miglani, J.( 2015, November) How Microsoft Makes Money? Understanding Microsoft Business Model. Retrieved from http://revenuesandprofits.com/how-microsoft-makes-money-understanding-microsoft-business-model/
[xx] Warren, T. (2015, March) Microsoft reveals how it will make money giving away software: It's all about getting you hooked. Retrieved from http://www.theverge.com/2015/3/16/8227847/how-microsoft-makes-money
[xxi]Lee, J (2014) Understanding How Open Source Software Developers Make Money. Retrieved from http://www.makeuseof.com/tag/understanding-how-open-source-software-developers-make-money/
[xxii]Centre for Learning & Performance Technologies(2016) Top 100 Tools for Learning 2015. Retrieved from http://c4lpt.co.uk/directory/top-100-tools/
[xxiii] Ambient Insight Research. International eLearning Market Research. Retrieved from http://www.ambientinsight.com/Reports/eLearning.aspx
[xxiv] Pappas, C. (2015) The Top eLearning Statistics and Facts For 2015 You Need To Know. Retrieved from http://elearningindustry.com/elearning-statistics-and-facts-for-2015
[xxv] Malony, M. (2013, October 15). The Biggest Scam In The History Of Mankind - Who Owns The Federal Reserve? Hidden Secrets of Money 4. [Video file]. Retrieved from https://www.youtube.com/watch?v=iFDe5kUUyT0
[xxvi] Nota Bene, Alfred Einstein’s quote: ‘The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it’. Retrieved from http://www.brainyquote.com/quotes/authors/a/albert_einstein.html