Russian Tech Spending Declines as Sanctions Take Toll

Information technology spending in Russia is expected to fall by 39% this year as global corporate sanctions following the invasion of Ukraine take their toll.

On Thursday, the US Senate voted 100-0 to strip Russia of privileged trade status and roll back President Biden’s Russian oil ban. The growing list of sanctions imposed by the US, EU and other countries restricts Russian access to a wide variety of goods and services, including financial systems and certain types of technology. Tech giants including Microsoft Corp.

Amazon.com Inc.’s

Amazon Web Services and Alphabet Inc.’s

Google Cloud has said they are suspending new sales or new customer adoption in Russia.

The sanctions will push Russia’s IT spending by an estimated 39%, or $12.1 billion, to $19.1 billion this year, compared to the $31.2 billion forecast for 2021, according to researcher International Data Corp. . IT leaders in Russia say they expect the sanctions to lead to widespread hardware shortages and create difficulties in replacing Western software with open source or locally developed alternatives.

In 2017, Russia required most state-owned companies to get rid of software from Western countries, but as of February 2022, many of these organizations were still heavily dependent on Western sources, IDC said.

“Hardly anyone expects the sanctions to ever be lifted” [soon]said Oleg Aksenov, a Moscow-based IT executive with 15 years of experience, most recently as a divisional CTO at Russia’s largest bank, Sberbank.

and one of the lead members of a non-profit group of Russian digital leaders. “Almost everyone just takes this as, this is a new reality. We are going to adapt to it. It will be just like in the days of the Soviet Union,” he said.

The effects of harsh economic sanctions against Russia are already being felt around the world. WSJ’s Greg Ip joins other experts to explain the significance of what’s happened so far and how the conflict could transform the global economy. Photo Illustration: Alexander Hotz

Hardware spending will decline the most, mainly due to a lack of supply, said Robert Farish, IDC vice president and regional director for the market encompassing the former Soviet Union. In the future, the weakened ruble will also make imported hardware more expensive, which in turn will affect demand, he said.

Karen Kazaryan, chief analyst in Moscow of the Russian Electronic Communications Association, said there are Russian hardware manufacturers, but their production is limited by global supply chain problems.

The war in Ukraine has disrupted the Russian hardware business and foreign companies such as Intel Corp.

and advanced microdevices Inc.

According to Mr. Farish of IDC no longer supply parts to Russian hardware companies. “They haven’t produced much since the beginning of March for the most part,” he said.

Ivan Kozlov, Vice President of the St. Petersburg CIO Club


Photo:

Ivan Kozlov

Ivan Kozlov, vice president of the St. Petersburg CIO Club, said major Russian companies have enough hardware in stock for about eight months. Afterwards he said: “We’ll see how it goes.”

According to Aksenov, Russian companies are opting for open source or locally developed alternatives to Western software subscriptions that do not renew.

Russian alternatives include MyOffice, which shares similarities with Microsoft 365, and 1C Co., which can duplicate some features of SAP software, according to Mr. Farish of IDC. Nevertheless, “the Russian software industry cannot cover all the thousands of niches that exist in the global software industry,” he said.

Konstantin Grachev, the deputy CIO of a supermarket chain with 611 stores in Russia, said his company had to scrap plans to move to Microsoft 365. He said the company is currently using Microsoft Windows 10 and Microsoft Office 16 for licenses it will have for several years. ago bought .

“We need to reinvent ways of working,” says Mr. Grachev, whose company roughly translates into “Good Choice” in English.

IDC estimates that Microsoft’s Azure Cloud is the largest cloud provider in Russia with a market share of 17%, followed by Amazon Web Services with 14%.

Mr Grachev said his company is transferring its data from Google Cloud to Russian cloud providers such as Yandex NV and VK Cloud Solutions.

Sberbank, Mr Aksenov said, uses its own SberCloud, one of the larger local providers.

While Western software services are still up and running, Mr Farish said, Russian users now understand the huge risk of using them as they could be blocked at any time by the companies or the Russian government.

In the long run, Russia will have to develop more of its own technology products, he said.

“This is definitely a time of crisis,” said Mr Kozlov, “[but] if someone leaves the market, there is always someone else to take that place.”

write to Isabelle Bousquette at Isabelle.Bousquette@wsj.com

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