BMI View: W e downgraded our forecast for Russian IT market growth in the Q3 15 update to reflect the weaker economic outlook - with recession and sharp rouble depreciation forecast to result in local currency contraction, and a sharp fall in the IT market in US dollar terms. We expect growth to return in local currency terms from 2016, but accelerate from 2017 as the economic environment becomes more supportive. There is , however , downside risk to this scenario , with political factors having the potential to generate uncertainty , for instance data localisation requirements and the government's increased strategic value on achieving technological independence .
Headline Expenditure Projections
Computer Hardware Sales: RUB507.6bn in 2014 to RUB471.3bn in 2015, -7.2% in local currency terms. Forecast downgraded in Q315 to reflect the weaker outlook for the rouble, while the fact demand was brought forward to 2014 ahead of anticipated price increases adds to the drag on spending.
Software Sales: RUB198.1bn in 2014 to RUB196.1bn in 2015, -1.0% in local currency terms. Demand for software from the modernisation initiatives of Russian enterprises will be met by local and global vendors, limiting market disruption relative to hardware sales, but the decline in purchasing power and confidence levels will mean the market contracts in 2015.
IT Services Sales: RUB289.6bn in 2014 to RUB284.7bn in 2015, -1.7% in local currency terms. New regulations requiring domestic data storage could delay the development of cloud computing supply, but with vendor investment in local presence due to the size of Russia's market, any downside should be short-term and IT services is forecast to be the outperforming segment over the medium term.
Key Trends And Developments
The Russian data localisation law is presenting challenges to vendors operating across all three segments of the IT market. In June 2015, it was reported in Russian business newspaper Vedomosti that South Korean vendor Samsung Electronics was in the process of transferring personal data of Russia based users to a datacentre in Moscow owned and operated by DataPro, a company partly owned by relatives of Sergey Bogdanchikov, the former CEO of Rosneft. Meanwhile, global PC market leader Lenovo had already begun transferring client data to servers in Russia, with the process reported to have cost USD50,000 by June 2015. Meanwhile, Taiwanese vendor Acer was reported to still be assessing whether the kind of data it collects will expose it to the data localisation law, which comes into effect on September 1 2015.
The requirement to store data locally, combined with a loss of confidence in US based vendors following the NSA scandal and the imposition of sanctions due to conflict in Ukraine, has created opportunities for smaller vendors. IDC reported that it was Chinese brands such as AIC, Huawei, Inspur and Lenovo that outperformed in terms of growth rates in the Russia server market in 2015. Chinese brands, along with Russian vendors such as DEPO and Aquarius, are hoping to capitalise on a loss of confidence in US brands. Another Russian vendor targeting an increased share of the storage market in Russia is BitBlaze (Promobit), founded by two Russian entrepreneurs in Omsk, Siberia. In 2013 BitBlaze sold 30 information storage systems, a figure that doubled to 60 in 2014 with revenue of around RUB7.8mn. BitBlaze servers are marketed based on technical benefits, primarily the efficiency versus rival products (claims of 13% lower energy consumption), and the fact the storage system is 'made in Russia', thereby tapping into demand generated by uncertainty surrounding NSA activities. BitBlaze management estimate external storage demand growth will accelerate from 20% to 50% with the imposition of the data localisation law, supporting BMI's view that there is specific upside from data localisation laws for storage vendors.