The Russian market was buffeted by strong economic headwinds throughout last year and BMI estimates that IT spending contracted by 21% in 2009 and will not return to 2008 levels until 2011. In 2010, the Russian IT market is forecast to grow by around 15% to reach US$15.0bn, still short of 2008's total IT spending of US$16.9bn.
However, Russia is showing signs of becoming a market that, through its scale, can influence global industry developments. Manufacturers of components and hardware alike are increasingly tailoring their products for the local market.
Hopes of a 2010 recovery were boosted by strong sales of computers in the 2009 New Year shopping season. Growing computer penetration, government information and communication technology (ICT) projects and immense potential for IT spending by Russia's traditional industries could drive an increase in IT spending per capita from around US$107 in 2010 to US$190 by 2014.
Industry Developments
In December 2009, the Russian government's Expert Council of the Federal Anti-Monopoly Service on Developing Competition in Information Technologies convened a meeting on identifying problems in the IT sector. The council set up a working group to summarise ideas and proposals on the development of the IT sector, which were expected to be presented to the government in early 2010.
The government has suggested that it will consider new measures if necessary to drive Russian government bodies to achieve key e-government targets. In a strongly worded speech in August 2009, President Dmitry Medvedev said that progress on e-government projects had been 'a disgrace' and threatened to introduce financial penalties for government bodies that failed to meet targets. The president's address echoed similar remarks made in May 2009 by Prime Minister Vladimir Putin, who also called for urgent drafting of a new e-government programme for the period up to 2015.
Competitive Landscape
Oracle received a Russian market boost in March 2010 when the Federal Anti-Monopoly Service finally cleared Oracle's acquisition of the Russian subsidiary of US company Sun Microsystems. Oracle launched a US$7.4bn global buyout of Sun Microsystems in April 2009, but the Russian antitrust authority had twice prolonged consideration of Oracle's proposal. However, the antitrust service issued instructions for Oracle aimed at maintaining competition on the market for database systems.
In November 2009, Microsoft said that it was considering launching its own retail presence in Russia in 2010. The outlets would be opened in Russia's largest cities and would be used more for brand development rather than a new sales channel. Meanwhile, in April 2010, IBM signed its first Russian Application Specific Licensing Agreement with long-term Russian partner I.T.Co.
Fellow US IT giant HP admitted that it had been hit hard by the Russian market contraction in 2009. The firm said that it expected 2009 annual output decline to be about 40% in Russia. However, HP said that it had outperformed the Russian IT market in the second quarter and that it expected to restore revenues to pre-crisis levels by 2011.
Hardware
BMI forecasts a return to growth for the Russian computer hardware market in 2010, following a sharp contraction in PC sales in 2009. According to BMI projections, the computer hardware market is forecast to recover to US$8.1bn in 2010, up from 2009's US$7.1bn but still short of 2008 levels.
Hardware spending will have support from a number of fundamental drivers including low PC penetration, rising incomes, government IT initiatives and industrial reform in many sectors. PC market compound annual growth rate (CAGR) for the next five years is projected to be in the region of 14%, with PC spending reaching US$11.3bn by 2014.
Software
The domestic software market is projected at around US$3.1bn in 2010. Spending in this sector is forecast to return to positive growth territory, after demand was hit in 2009 by the much sharper decline in PC sales. Going forward, the market is projected to grow at a CAGR of 15% to US$5.3bn by 2014, making Russia potentially one of the most significant global software market opportunities.
The domestic software market is estimated at around US$2.7bn in 2009. Although Russia has the fifth highest software piracy rate in the world (at 87%), BMI expects that government efforts to strengthen intellectual property protection will see this fall closer to average Eastern European levels, boosting the market. Unsurprisingly, there are regional disparities, with Moscow some way ahead of its closest rival St Petersburg in terms of enterprise resource planning (ERP) deployments.
Services
BMI projects an IT services market value of US$3.8bn in 2010, which will represent some recovery from 2009 when the market experienced a sharp contraction. The IT services opportunity is forecast to grow to around US$7.2bn by 2014, as the IT market gradually recovers from recent external shocks.
E-Readiness
The government's ambitious policy is that every locality in Russia should be provided with fixed-line telephony infrastructure, mobile phone coverage and internet by 2015. According to the Ministry of IT and Communications' target, every populated area in the country should be provided with all three elements irrespective of its economic 'weight' and 'population'. IT and Communications Minister Reiman has described the 'digital divide' as a very challenging issue for all CIS countries and one that the Russian government was seeking to overcome.
Internet usage is forecast to see robust growth over the remainder of our forecast period. However, the current tight credit markets are limiting the ease with which broadband operators are able to source muchneeded funds to invest in broadband network proliferation. Coupled with economic uncertainty, this is creating a troublesome environment for operators to plan their investment decisions. That said, growth will still be strong - just not meeting its full potential.
Competition between the incumbent's holdings and alternative operators such as Comstar-UTS, Golden Telecom and Net By Net will continue to drive the sector forward. Continued expansion of networks, both fixed and wireless, should see penetration increasing in the regions, while uptake remains strong in the more urbanised areas. Alternative technologies such as WiMAX and fibre will also play their part in expanding the market, by introducing competition as well as offering services over a wider area.
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