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‘Everything is gone’: Russian business hit hard by tech sanctions

Russian companies have been caught in a technological crisis by Western sanctions that have created severe bottlenecks in the supply of semiconductors, electrical equipment and the hardware needed to operate the country’s data centers.

Most of the major chip makers in the world, including Intel, Samsung, TSMC and QualcommBusiness to Russia was halted completely after the US, UK and Europe imposed export controls on products using chips manufactured or designed in the US or Europe.

This created a shortage in the type of large and low chips that go into the production of cars, household appliances and military equipment. Supplies of more advanced semiconductors, used in innovative electronics and IT hardware, have also been greatly reduced.

And the state’s ability to import foreign technology and equipment containing these chips – including smartphones, network equipment and data servers – has been drastically halted.

“Entire supply paths for computer servers for iPhones – everything – are gone,” said one of the top Western chips.

The West’s unprecedented sanctions on President Vladimir Putin’s sanctions War in Ukraine Forcing Russia to get into what the central bank said would be a painful “structural transformation” of its economy.

Because the country is unable to export much of its raw materials, import critical goods or access global financial markets, economists expect Russia’s gross domestic product to shrink by up to 15% this year.

Export controls on “dual-use” technology that can accommodate both civilian and military applications – such as chips, semiconductors and servers – are expected to have some of the most severe and lasting effects on Russia’s economy. The largest telecom groups in the country will not be able to access 5G equipment, while cloud computing products of technology leader Yandex and SberbankThe largest bank in Russia, Will struggle to expand their data center services.

Russia does not have an advanced technological sector and it consumes less than one percent of the semiconductors in the world. This meant that technology-specific sanctions had a far less immediate impact on the country than similar export controls on China, the masterpiece of global technological production, when they were introduced in 2019.

While Russia has several domestic chip companies, namely JSC Mikron, MCST and Baikal Electronics, Russian groups have in the past relied on importing significant quantities of finished semiconductors from foreign manufacturers such as SMIC in China, Intel in the US and Infineon in Germany. MCST and Baikal relied mainly on Foundries in Taiwan and Europe to manufacture the chips they design.

MCST said on Monday that it was considering moving its production to Russian factories owned by JSC Mikron, where it said it could create “proper processors with sovereign Russian technology,” according to business news site RBC. But Sberbank said last year that Elbrus chips, developed by MCST, failed “catastrophically” in tests, showing that their memory capacity, processing and bandwidth are much lower than those developed by Intel.

In response, the Kremlin should be creative. Russia this month unveiled an import plan that allows companies to “import parallel” hardware – including servers, cars, phones and semiconductors – from a long list of companies without trademark or copyright notice.

Russia has historically been able to rely on unauthorized “gray market” supply chains for the supply of some technological and military equipment, while purchasing Western products from resellers in Asia and Africa through intermediaries. But a global shortage of chips and vital IT hardware has caused even these channels to dry up.

“Several companies have organized supplies from Kazakhstan,” said Karen Kazarian, head of the Internet Research Institute in Moscow. “Some second-tier Chinese companies are willing to supply. There is a stockpile of components in Russian warehouses… But it’s not the volume they need, it’s unstable, and prices have gone up at least twice.”

Officials in Russia have also examined the transfer of production to foundries in China, but there is little evidence that Beijing has come to the rescue.

A semiconductor lithography machine manufactured by Mapper, of which TSMC was a customer. Along with rivalry, Taiwanese chipmaker halted business with Russia © Mapper Lithography / Reuters

One of the chips’ top executives said that “in terms of electronics and telephones and computers and data centers, what you see in most cases is that manufacturers outside Russia do not supply products to Russia even if it contains an earlier-generation chip from China.”

They added that despite Xi Jinping’s reluctance to condemn the war in Ukraine, some Chinese companies decided to stop selling smartphones to Russia – even though this electronics were hewn out of sanctions in an effort not to directly punish Russian consumers – because they were concerned about the impact on their brands.

A shortage of advanced chips has tangibly shaken Russia’s emerging cloud computing market, which has grown in recent years thanks to laws requiring companies to store data on Russian soil.

Since the sanctions took effect, Russia’s major cloud service groups – Yandex, VK Cloud Solutions and SberCloud – have experienced an increase in demand for their services as most Russian companies are no longer willing to host their applications in data centers abroad, according to analysts at IDC Marketing Intelligence Group .

VK Cloud Solutions wrote to the Kremlin last month asking for urgent help in finding “tens of thousands of servers,” according to local media reports. Local companies are no longer able to obtain them from Western companies, and the lack of advanced chips entering servers prevents Russian IT manufacturers from increasing their production.

By 2021, there were 158,000 of the most common servers everywhere – known as X86 – delivered to Russia, 27 percent of which were manufactured by Russian manufacturers, 39 percent by American and European vendors, and the rest manufactured in Asia, according to IDC data.

The sanctions have also forced cellular operators to drastically reduce their plans. Without a ready-made local replacement for 5G hardware – advanced mobile Internet technology made by Nokia, Ericsson and Huawei – operators will probably try to buy outdated 4G equipment in the secondary market from countries that have already moved to the next generation of technology. Said Gregory Bakunov, a former Yandex executive.

He added that the government may advise companies not to build competitors for Western technology leaders, such as Yandex’s young taxi app or VK’s social network. “This is how the issue of what to do in the next five years without infrastructure is resolved,” Bakunov said. “You reduce the amount of equipment you use by constantly giving up competition.”

This article has been corrected to correct a chart that contained an error in the Russian imports of semiconductors

‘Everything is gone’: Russian business hit hard by tech sanctions Source link ‘Everything is gone’: Russian business hit hard by tech sanctions

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