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. Last Updated: 07/27/2016

HP Expects Gains in Falling Market

The economic crisis hit Hewlett-Packard hard in Russia, where the IT market shrank this year more than in any other BRIC country, but the technology giant plans to restore output to precrisis levels by 2011, HP Russia’s managing director said Thursday.

“Looking at BRIC and the other emerging markets, not to mention the mature ones, Russian IT spending sank most dramatically in 2009,” Owen Kemp said in an interview at an event celebrating HP’s 40 years in Russia. “In the first quarter, the decline was just like a shock wave for us, and at the time we were forecasting a decline of between 60 and 64 percent.”

The country’s IT market was worth more than $5.22 billion last year, up 18.7 percent from 2007, according to market research firm IDC. Sales were down 40 percent in the first two quarters of 2009, according to a report by BCC Company, one of the largest IT operators in Russia. The decline may reach 60 percent by year-end, it said.

HP was in line with the negative trend earlier this year, but Kemp said the company was already starting to outperform the market.

“In the second quarter we have actually taken market share, and though we declined with the market, we didn’t decline as fast,” he said. “Now, we expect HP’s annual output drop in Russia to be around 40 to 45 percent in 2009.”

IDC forecast that the Russian market would be slow to recover, reaching $4.73 billion only by 2013 — still lower than in 2008. But Kemp said HP would be able to reach its precrisis output sooner.

“I do see some light at the end of the tunnel, and I anticipate recovery to 2008 levels by 2011,” he said. “Next year will be a year of recovery.”

He was also bullish on longer-term growth prospects for Russia, which still lags behind the IT markets of Brazil, India and China. International cooperation, he said, will be key.

Prime Minister Vladimir Putin famously scolded Dell Computers chief Michael Dell at the Davos forum in January for offering to help develop the sector, saying “We don’t need help. We are not invalids.”

Kemp said all economies — not just Russia — needed international ties for a thriving IT sector.

“Of course Russia needs to partner with other markets,” he said. “There is no IT market in the world that can get by without help from abroad — even the U.S. … Just look at the amount of outsourced software and application development it has.”

One positive sign, he said, was Russia’s strides in recent years to improve its protection of intellectual property.

“The legislation here isn’t world-class, but it’s good enough for us to move one of the subsidiaries of HP Labs to Russia,” Kemp said. “It’s a sign that we feel confident that we will be able to protect what we’ve been producing here.”

The market’s biggest challenge now will be finding and retaining qualified staff, he said. Since the crisis hit, retention hasn’t been as much of a problem, but the “dragon could soon lift its head again.”

The market for IT professionals here is growing, and students are swarming toward economics and public relations instead of technology.

“If you look at the statistics of the university students, people are swinging away from the traditional strengths of the Russian education — the more technical fields — and going more into law and economy,” he said. “There’s been a fundamental bottleneck, and I fear it might get worse.”

HP, whose businesses worldwide employ more than 300,000 people, reported revenues of $118.4 billion and net income of $8.3 billion in 2008. The company has only one-third of its business in the United States, while the rest is in emerging markets like Russia, where it employs more than 1,200 people.

The company has been operating in Russia since 1969 and now has 11 offices, he said.

HP does not report results by country, but according to an estimate by CNews Analytics, a Russian IT market analysis portal, the company’s revenues in Russia were $2.8 billion in 2008, or 2 percent of its worldwide turnover, compared with $2.2 billion in 2007.