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February 19, 1999
Web posted at: 2:44 p.m. EST (1944 GMT)

by Jeanette Borzo

(IDG) -- The Russian economy is so volatile these days that even the analysts -- whose job it is to predict market trends -- shrink from the task of predicting what will come next for the country's information technology market.

"It is extremely difficult to make even short-term predictions on the Russian IT market right now," said Robert Farish, International Data Corp.'s research manager in Moscow. "The economic situation in the country has stabilized somewhat since the August crisis, but this stability could vanish at any time".

More than 1.4 million PCs were shipped in Russia in 1997, IDC estimated in April last year, at a total value of $1.9 billion. At that time, IDC forecast that the Russian PC market -- Europe's fifth largest -- would grow 21% to 1.7 million units in 1998.

But those estimates were soon revised. Along with the Russian economy, the Russian PC market began to falter as early as the second quarter last year, when the number of PCs shipped to Russia dropped 22% from the second quarter in 1997, according to IDC. Provisionally, IDC is now predicting that some 950,000 PC units were shipped to the Russian mar

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By September last year, the PC market in Russia was directly hit by the collapse of the country's banking system, and IDC predicted the market's first annual decline in PC shipments since it began measuring the market in 1994. The economic and political situation has affected market sectors across the board, IDC said. Virtually all types of organizations -- from government bodies to small and medium-size enterprises -- have slashed or eliminated IT budgets.

Previous years were kinder to the Russian IT market. Unit shipments in the Russian PC market increased 20% in 1996 to an estimated total of more than 1 million, according to IDC. Market value for the units shipped increased 32% in 1996 from the previous year to $1.486 billion.

Russia's IT market had been growing rapidly over the past several years, in spite of the fact that the country has had a negative gross domestic product growth, IDC noted. Mostly driven by investments in hardware, Russia had become Europe's fifth-largest PC market with a 33% growth rate in 1997. Farish estimated that Russia's entire IT market was worth $3.47 billion in total in 1997, with 81% of that coming from hardware sales, 7% from software and 12% from services.

But now the crisis has hit the largest Russian PC vendors as well as international brands hard, Farish said. Small, local assembly companies seem to have come out the best. "However, it really is still too early to see how this will unwind in the longer term," Farish added.

Demand for imported PCs has fallen, Farish said, as buyers have tried to save money in any way they can -- such as by purchasing locally made machines.

For resellers and distributors, the situation provides a barrage of challenges for even the most business-savvy. "No one can comment with any degree of certainty about next month, let alone next year," Farish said. "I think the best profit-making idea for any foreign company is to wait until the smoke clears."

Amid all this bad news, IDC reaffirmed its belief in the Russian market's long-term prospects. Crisis is a "permanent feature" of Russia's status quo, IDC said.

"Russian distributors are used to crisis," Farish noted.

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