Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

COMPUTER BUSINESS: Post-Crisis IT Market Beats Expert Forecasts




Last year's economic crisis brought with it a sharp decline in demand for imported products. Like most other observers, we had never expected an economic meltdown to occur in mid-1998 and were forced to re-think our forecasts for different segments of the Russian information technology market. After five years of market growth, albeit very uneven, the IT market was clearly heading for a serious recession.


To forecast the depth of this recession we came up with a theory. We supposed that the decline in the market for all imported hardware would be linked to the decline in the value of the ruble against the U.S. dollar.


The market would not fall as steeply as the ruble since, in the short term, buyers were probably keeping some of their cash in dollars, and some sectors of the economy were earning hard currency.


Also, the extent the IT market declined would be slightly offset by vendors prepared to cut their profit margins after the crisis and a slight decline in the local cost of distributing imported products.


After several months of data collection, I now have a chance to look back at the forecasts we made last October.


Despite factoring in the points mentioned above, it is apparent from the results of technology sales between October and March that our assumptions were too pessimistic.


In the aftermath of the crisis, sales of all the main office automation products appear to have declined 50 percent to 60 percent, whereas the national currency has lost two-thirds to three-quarters of its value.


The rate of market decline has also been quite different for different technologies. Sales of printers, for example, have held up a lot better than sales of fax machines, and sales of networking products have declined significantly less than sales of personal computers.


I have not entirely abandoned our original theory.


I think that these higher than expected sales can be explained.


At the end of 1998, many buyers were forced to make IT purchases after delaying them since August because of the wildly fluctuating ruble and the frozen banking system.


Of course, there were also periods when the ruble strengthened against the dollar and it made sense to make spot purchases of imported goods.


Many larger corporate customers started buying because a momentum had built up behind a major investment in IT equipment that would have been too complex and too costly to postpone.


The fairly stable ruble also prompted the purchases. Until last month, the Central Bank succeeded in keeping the rate at which the ruble devalued against the dollar relatively slow.


This has not only made commerce easier, but also injected a little confidence in the Russian currency.


For the next few months we expect the reduced purchasing power of Russian customers to be reflected more clearly in sales of office automation products.


The market has now corrected itself and there are likely to be fewer corporate customers having to conclude project purchases initiated last year.


We are currently estimating that the second quarter of this year is likely to see the slowest sales of IT products since 1994. How slow of course depends on what happens to the value of the ruble.


Robert Farish is research director at IDC Russia. E-mail: farish@online.ru