IDC on Russian IT Markets: Too Early To Panic

MOSCOW/PARIS, Sept. 9, 1998 – 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. The recent financial turmoil, ignited by political uncertainty, may have burst the bubble. International Data Corporation (IDC) expects the IT market to be severely marked by the present situation, but remains convinced that Russia remains a country of opportunity … in the medium to long run.

IDC, which 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 personal computer 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 this 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/U.S. Dollar exchange rate.

All sectors of the IT economy will be 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.

The immediate consequences in the sudden market turnaround will be the weeding out of the most vulnerable structures of the market. 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. Furthermore, international component and equipment suppliers who had extended credit to their Russian clients should be prepared to write most of it off.

Eventually this will lead to a reshaping of the Russian IT market. The balance of power, which up to now had favored domestic providers, will most probably shift … at least in the short term.

Although the situation may seem very grim at present, IDC 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. Once the financial environment stabilizes, the market will recover. 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.

A more detailed analysis of the Russian IT market crisis can be found on IDC's Web page: www.idc.com. For comments, please contact Eric Progent, IDC ECE senior consultant (eprogent@idcresearch.com or +33 1 49 04 80 75).

About IDC East Central Europe (ECE)

IDC ECE has been researching the IT markets of East Central Europe since 1989. With six offices in the region (Moscow, Prague, Hungary, Poland, Croatia and Bulgaria) it covers a wide range of information technology markets on a quarterly and annual basis. IDC is the industry's most comprehensive resource on the region's IT markets, products, vendors, and geographies.

About IDC

Headquartered in Framingham, Mass., International Data Corporation provides IT market research and consulting to more than 3,900 high-technology customers around the world. With a global network of 375 analysts in more than 40 countries, IDC is the industry's most comprehensive resource on worldwide IT markets, products, vendors, and geographies.

IDC/LINK, an IDC subsidiary, researches and analyzes the home computing market, leading-edge technologies in telecommunications and new media, and the convergence of computing and consumer electronics.

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IDC is a division of International Data Group, the world's leading IT media, research and exposition company.

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