May 23, 2022

In recent weeks, since Russia first invaded Ukraine, we have heard of a number of tech companies joining companies from various industries to put a hold on sales in Russia. This was a massive response and makes clear that companies will not continue to do business in the country as usual, but what will be the real economic impact of these actions on these companies?

As noted in an IDC report published earlier this week, with an attack on Ukraine and imposition of sanctions against Russia, Ukraine will inevitably have some impact on technology companies operating in this part of the world.

“The conflict has brought business activity to a halt in Ukraine as the Russian economy experiences the early effects of Western sanctions. This will have a strong impact on technology spending in both countries as demand in the local market declines by double digits in 2022,” the company said in a statement.

However, on a net basis, Russia and Ukraine combined, while large, do not account for a large percentage of total global technology spending. In fact, IDC reports that the two countries together account for just 5.5% of European technology spending and just 1% of global technology spending.

Canalis said tech companies that haven’t stopped selling in Russia are being forced to do so. “Accenture, Apple, Cisco, Dell, HP, HPE, Oracle, SAP and TSMC (Semiconductor) are among the technology players in a growing list of international companies (all sectors) cutting ties with Russia. Those who do not find themselves increasingly at odds with global sentiment,” the company said in a report released earlier this month.

According to Canalys, Russia accounts for 20% of the European smartphone market and 8% of the PC market. Apple leads the Russian PC market with a 17% share, while Lenovo leads the way. HP is a hair’s breadth behind 15%.

Canalis.  By PC market share in Russia in 2021

image credit: Channel

According to Canalys, these figures represent about 2% of the total revenue of these companies. All three market leaders have suspended sales in Russia. It is worth noting that the news reports that the Chinese company Lenovo is under pressure from the Chinese government to reverse this decision.

In terms of smartphones, Chinese smartphone maker Xiaomi leads the market with 31%, followed by Samsung with 27% and Apple in third position with 11%.

Canalys 2021 Top 5 smartphone vendors in Russia

image credit: Channel

It accounts for 2% of Apple’s total revenue and 4% of Samsung’s revenue. Both Apple and Samsung have suspended sales in Russia.

Canalis suggests that the Russians may turn to Chinese technology to solve this problem. “With restrictions on technology imports imposed by the West, Russia can be expected to turn to China (which has said it opposes sanctions), especially as the Russian government seeks to replace Western brands and gain access to key technologies. The winners are likely to be Chinese suppliers such as Huawei, which have themselves been victims of Western trade sanctions.

However, as Lenovo’s position shows, it is more difficult for Chinese companies that do a lot of work with Western customers.

As for the three main cloud providers: Amazon, Microsoft and Google? John Dinsdale, chief analyst at Synergy Research, which monitors the cloud computing market, said Russia accounts for 1% of the companies’ total business.

“From the point of view of AWS, Microsoft Azure and Google Cloud, closing Russian customers will not do much,” he said.

But for these clients, it can still be painful. “Of course, for clients who may be bitten, the impact can be very significant. Russia is not a particularly developed market, but it will be difficult for companies that have taken a big step towards cloud operations to change course,” he said.

Canalys analyst Blake Murray agreed but said that, as with smartphones and PCs, abandoned customers could turn to the Chinese cloud giant. “In general, Russian companies are expected to target Russian telecom operators such as Yandex and Chinese providers that have data centers in the country. They will also try to replace office-like software with counterparts registered in Russia,” he said.

It won’t be easy to say, but Murray said that many organizations in Russia have at least begun migration work in this direction.

You might be interested in learning about the impact of SaaS on business. Dinsdale said the more fragmented the SaaS market, the more options there are in the country. However, “Russia is once again a small market, accounting for less than 1% of global SaaS revenue. For both Microsoft and Salesforce, Russia accounts for less than 1% of their SaaS business.”

Finally, backbone ISPs are reportedly moving out of Russia, with Cogent and Lumen announcing their demise this week.

“The business services we provide are extremely small and very limited, as is our physical presence,” Lumen said in a statement. “However, we are taking measures to immediately stop activities in this area.”

Cogent has not made any public announcements, but it is widely known that it is ending its operations in Russia. It is not clear how this will affect, but the Cogent network map shows that it does not have data centers in Russia.

However, cutting off internet access can have dire consequences for people trying to get news from outside the country and for companies trying to do business. As Dinsdale pointed out, you can’t access a cloud service without Internet access, which could potentially have serious consequences.

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