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Russia Information Technology Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8428 Description BMI projects that Russian IT spending will contract by 12% in 2009, before recovering to grow at an11% compound annual growth rate (CAGR) to a value of around US$22.8bn by 2013. A markedcontraction occurred in PC sales in H109, with shipments reportedly down by more than 30% year-onyear(y-o-y) and steep falls in imports.Software and IT services sales were relatively less affected, but could not escape the negative effect of thedecline in the PC market. Overall the total IT market seems likely to have contracted by a double-digitfactor in H109 as economic conditions continued to worsen. Looking forward, Russia is still on course to emerge as one of the largest IT markets in Europe, even ifthis is at a slower rate than previously expected. Growing computer penetration, government informationand communication technology (ICT) projects and immense potential for IT spending by Russia'straditional industries all have potential to drive an increase in IT spending per capita from around US$105to US$165 over the 2009-2013 period. Industry Developments The Russian government has suggested that it will consider new measures if necessary to drive Russiangovernment bodies to achieve key e-government targets. In a strongly worded speech in August 2009,President Medvedev said that progress on e-government projects had been 'a disgrace' and threatened tointroduce financial penalties for government bodies that failed to meet targets. The Russianpresident pointed to a number of projects where 'no real progress' had been made. These included: The development of the inter-agency electronic document management system; Setting up a fully fledged online public procurement system; Establishing a unified system of state registration of the results of scientific research andexperiment and design work. The president's address echoed similar remarks made in May 2009 by Prime Minister Putin, who alsocalled for urgent drafting of a new e-government programme for the period up to 2015. Competitive Landscape Vendors felt the effects of difficult trading conditions in Russia's PC market in H109. Most multinationalvendors reported steep falls in shipments, but some Asian vendors such as Acer, Asus and Lenovoappeared to fare relatively better. Although PC sales have grown at a double-digit CAGR over the lastfew years, local brands and assemblers still dominate the market. Software market leader Microsoft said in June 2009 that it planned to double its sales in Russia withinthree years. Microsoft had previously announced in April 2009 that it was to invest US$300mn dollars inRussia over the same period. Russia was its highest growth market among Central and Eastern European(CEE) countries in FY08, ahead of Ukraine in second place, with both markets recording growth of above45%. Meanwhile, foreign IT services vendors such as IBM have continued to win contracts based on theirreputed expertise. In 2009 IBM won a major contract from Russian Railways. The project, scheduled forcompletion in 2010, includes migration of freight and passenger management systems, and financialmanagement applications, to three new consolidated, disaster-proof data centres. Hardware The Russian PC market is forecast to contact 18% in dollar terms in 2009. However, PC market CAGRfor the next five years is projected to be in the region of 12%, reaching about US$9.8bn by 2013. Despiteadverse economic trends, hardware spending has support from a number of fundamental drivers includinglow PC penetration, rising incomes, government IT initiatives and industrial reform in many sectors.In Russia, demand for computer hardware including peripherals accounts for about two-thirds of total ITspending. According to BMI projections, the computer hardware market is forecast to drop to US$7.8bnthis year, from US$9.6bn in 2008. The PC market is thought to have fallen by at least 30% y-o-y in H109,and with rising unemployment, economic uncertainty and currency weakness affecting consumerconfidence, the downturn is likely to be prolonged. Software The domestic software market is forecast at around US$3.1bn in 2009. Although Russia has the fifthhighest software piracy rate in the world (87%), BMI expects that government efforts to strengthen IPprotection as part of the conditions for WTO entry will see this fall closer to average Eastern Europeanlevels, boosting the market to US$4.8bn by 2013. There are, unsurprisingly, regional disparities, withMoscow some way ahead of its closest rival St Petersburg in terms of enterprise resource planning (ERP)deployments. The economic headwinds represent a challenge for software vendors, as enterprises have an increasedtendency to focus on the bottom line and defer spending on systems. However, in 2008 companies in keysectors such as telecoms continued to invest in software. In the current economic environment, vendorswill want to pitch the potential efficiency savings offered by new applications. Services BMI projects an IT services market value of slightly below US$4.0bn in 2009, down from US$4.2bn in2008. The IT services opportunity is expected to grow to around US$6.2bn by 2013, as the IT marketgradually recovers from recent external shocks.The broader use of ICT in government and other sectorswill ensure an upwards market trajectory in the medium term. Systems integration is the largest IT services component, with as much as one-third of segment revenuesand, together with implementation of hardware and software, probably accounts for about half of all ITservices. However, more value-added services such as consulting and applications development aregrowing fast. Outsourcing is also on the rise, although below the levels in some other CEE countries. E-Readiness The government's ambitious policy is that every locality in Russia should be provided with fixed-linetelephony infrastructure, mobile phone coverage and internet by 2015. According to the Ministry of ITand Communications (MITC)'s target, every populated area in the country should be provided irrespectiveof 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 wasseeking to overcome. Internet usage is forecast to see robust growth over the remainder of our forecast period, to reach over52% of the population in 2013. However, the current tight credit markets are limiting the ease with whichbroadband operators are able to source much-needed funds to invest in broadband network proliferation.Coupled with the economic uncertainty, this is creating a troublesome environment for operators to plantheir investment decisions. That said, growth will still be strong, it just will not meet its full potential.Competition between the incumbent's holdings and alternative operators such as Comstar-UTS, GoldenTelecom 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 inthe more urbanised areas. Alternative technologies such as WiMAX and fibre will also play their part inexpanding the market, by introducing competition as well as offering services over a wider area. Table of Contents
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