Russia to Reduce Reliance on Microsoft, IBM After Sanctions

By Ilya Khrennikov 

July 21 (Bloomberg) -- Bloomberg’s Ryan Chilcote reports on mounting international pressure on Russian President Vladimir Putin over the downing of flight MH17 in Ukraine. He speaks on “Bloomberg Surveillance.”

Russia’s parliament is preparing new rules in a bid to cut its reliance on foreign technology suppliers after U.S. sanctions against some of the country’s largest companies, a move that could hurt sales at vendors such as Microsoft Corp. (MSFT) and International Business Machines Corp. (IBM)
The State Duma, Russia’s lower house of parliament, is drafting a bill to require government agencies and state-run enterprises to give preference to local providers of software and hardware, according to a document from the commission for strategic information systems obtained by Bloomberg News. The paper addresses criteria for tender processes such as favoring products that don’t have imported, licensed components.

“This all has to do with sanctions,” Andrey Chernogorov, executive secretary of the commission, said in a phone interview. “Given the current international tensions, substituting imports with local software and hardware becomes the key to ensuring self sufficiency.”
The Obama administration on July 16 tightened sanctions on Russian banks, energy and defense companies to punish the country over its interference in Ukraine. On the following day, the downing of a Malaysia Airlines jet caught in the military conflict, killing all 298 people on board, sent the Ukraine crisis into a new phase and raises the prospect of further sanctions.

H-P, Oracle

Hewlett-Packard Co. (HP), IBM, Microsoft, Cisco Systems Inc. (CSCO), Oracle Corp. (ORCL) and Germany’s SAP SE had combined revenue of 285 billion rubles ($8.1 billion) from Russia last year, according to estimates by the Russian Academy of Sciences that are included in the commission’s document. Hewlett-Packard and IBM together accounted for almost 78 percent of the figure. About 77 percent of the total sales were contracts from the government and state-controlled companies, it said.
Spokesmen for IBM and Oracle in the U.K. declined to comment on the planned law. Representatives for Hewlett-Packard, Microsoft, SAP and Cisco didn’t immediately return phone calls and e-mails seeking comment.
Hewlett-Packard slipped 0.5 percent at 9:48 a.m. in New York trading. IBM fell 1.2 percent, Microsoft lost 0.5 percent, Cisco dropped 0.1 percent and Oracle rose 0.3 percent. SAP lost 0.5 percent in Frankfurt trading.
The commission accelerated preparation for the bill after reports that American technology companies may cut off services to Russian banks and companies to comply with U.S. sanctions, Chernogorov said. The proposal may be submitted for a parliamentary vote in September, he said.

Rosneft, VEB

Among Russian companies the U.S. imposed lending curbs on last week are energy giants OAO Rosneft (ROSN) and OAO Novatek (NVTK) as well as Vnesheconombank and OAO Gazprombank. Since sanctions against Russia were first announced in March, President Vladimir Putin has repeatedly called for substituting imports with domestic production to limit the threat to Russia’s economic growth.
With the lack of regulations in post-Soviet Russia that govern the award of technology contracts, foreign vendors account for 67 percent of software used in the country and about 90 percent of hardware, according to the commission. Foreign software may have hidden capabilities such as “bugs” and “backdoors,” giving suppliers access to confidential data, Chernogorov said.
Russia’s Communications Ministry is among agencies seeking to cut dependence on foreign vendors as it develops its e-government initiative, a unified database of personal data used to provide online services such as granting a license permit or assigning a child to school.

Local Production

“The idea of supporting local IT production is justified,” said Nikolay Komlev, executive director of the Russian Association of Computer and IT Enterprises, which represents multinationals such as IBM and Hewlett-Packard as well as Russian vendors. “Still, its implementation proposed by State Duma may give a competitive advantage to not the most efficient companies.”
Russia’s largest IT companies with annual revenue exceeding $1 billion include NCC, Lanit, Technoserv, NVision Group and IBS Group Holding Ltd. (IBSG), according to CNews Analytics.