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. Last Updated: 07/27/2016

COMPUTER BUSINESS: Economic Crisis Hurts Market for Computers

At the start of this year when I first started hearing about the current economic crisis, I have to admit that I was little blase. Most computer companies were at that time reporting that sales were fairly strong and that disasters on the Russian stock market didn't seem to be affecting anyone's willingness to buy computers.

By April, I was getting concerned. Component manufacturers were reporting a mysterious drop in demand, indicating that the next few months would be tough. By June, it was clear to just about anyone in the Russian computer business that we were experiencing a very serious sales slump. Right now there are no signs that business is picking up in mid-summer, and everyone is praying that demand will rise again in the autumn.

Sales of computers and computer related products in May and June were terrible. Manufacturers and distributors all report that sales came in well under plan and were as much as 50 percent lower than in January or February. Having expected sales to be much better, distributors found themselves with large amounts of unsold stock and so have been desperately cutting prices to clear their warehouses. So much so that Moscow is now awash with bargains. If you are planning to invest in a computer monitor, for example, there has never been a better time to buy.

The rumor mill is also saying some firms may not survive this summer recession. Of course, you cannot believe everything competing firms say about each other, but the twin pressures of falling sales and vicious price cutting are surely taking their toll on many volume distributors.

According to those distributors I have spoken to, demand has been severely reduced because state budget allocations are not being paid. Regional dealers aren't buying because they say their customers have "no money". The situation in many Russian regions is usually borderline, even in better times, with budget payments keeping the local economy alive. When the payments stop, everything grinds to a halt -- not just the state-financed sector.

However, the slump is also affecting the more complex and affluent markets in Moscow and St. Petersburg, with retail sales significantly down compared with earlier this year.

What's new about the current situation in the computer market compared with previous down periods is that almost everyone appears to be hurting. Companies report that many corporate customers have frozen purchasing decisions, perhaps waiting to see if the Russian government chooses to take draconian action to raise the money it needs. Attacks by the tax police seem to have intensified, leading some companies to keep plenty of money in reserve in case they are presented with a huge tax bill. State sector buyers have received no budget money so they are also not purchasing anything. Sales to small businesses and consumers are also significantly down, indicating that budget money has a ripple effect in the economy since such a significant proportion of it is allocated to paying people's wages.

But compounding these problems is a crisis of confidence. A bad situation is made worse by the fact that customers are very worried about the future. The Russian computer market is particularly vulnerable to the mood of the moment since both customers and dealers are used to violent swings of fortune.

Typically, computer sales are fairly flat in summer and start to pick up beginning in September. This year, it seems that the upswing may depend on how the Russian government rides out the current economic crisis. For vendors and distributors it is going to be a nerve-racking summer.

Robert Farish is the research director at IDC Russia