Idc Urges Hi-Tech Firms Not To Panic Over Short Term Decline In Russian It Market

EDP Weekly's IT Monitor, Sept 14, 1998

IT Researcher Insists Russia Remains A

Good Opportunity In Medium To Long Term

Since opening up to the world of free trade, Russia has undergone a complete turnaround in its IT infrastructure. Despite suffering through several consecutive years of negative GDP growth, the country's investments in information technology have expanded swiftly, albeit at an irregular pace. Essentially driven by investments in hardware, Russia had propelled itself to become Europe's fifth largest PC market on the back of 33 percent growth in 1997.

But the recent financial turmoil ignited by political uncertainty has burst the bubble, at least for now. While market research firm International Data Corp. expects the IT market to be severely marked by the present situation, it says it is "convinced that Russia remains a country of opportunity...in the medium to long run." (Continued on Page 6)

IDC, which closely monitors IT activity in Russia on a quarterly basis, was recording early signs of a major slow down as early as Q1 1998. Following four consecutive quarters of strong growth in PC sales during 1997, the rate of expansion fell sharply -- to only 10 percent -- for the first three months of 1998. By the time the second quarter kicked in, shipments started to nose-dive: in Q298, volume sales dropped by 17 percent. In the first few months of Q3, initial feedback from the market points to an even greater decline.

IDC expects the immediate effects of the crisis will also seriously impact shipments in the last three months of 1998 and the first quarter of 1999, leading to the Russian PC market's first annual decline of the decade. "Investments in IT are unlikely to recover until some stability returns to the Ruble/US Dollar exchange rate," say IDC analysts.

All sectors of Russia's IT economy are expected to take a hit. State procurements have ground to a standstill and many already budgeted allocations have been frozen. Small- and medium-size companies as well as the SoHo market, which had been fueling much of the growth over the past two years, are also registering drops in purchasing.

While international vendors have the financial resources to weather the storm, many top local personal computer assemblers and distributors are expected to collapse, leading to product supply disruptions and high volatility in the market. International components and equipment suppliers who had extended credit to their Russian clients should also be prepared to write most of it off.

Although the situation may seem very grim at present, IDC says it "has faith in the long term prospects of the Russian IT industry. Though the present financial crisis is serious, it should be viewed within the context of a country where crisis is a permanent feature of the status quo. The country still has a dire need for information technology. Companies that can adopt a long term perspective will find windows of opportunity and better days in the years to come."

Editor's Note: A more detailed analysis of the Russian IT market crisis can be found on IDC's Web page at www.idc.com. n