Digital industry under attack. What effect may anti-Russian sanctions have on the Western IT manufacturers?

The experiments in expulsion of Russia from the global economy that started after the beginning of the special military operation in Ukraine have recently taken the form of hysteria and been considered by many international experts an attempt to destroy this very economy. In their opinion, the Western sanctions imposed on Russia can backfire on the sanctions’ instigators. This applies not only to oil and gas because Russia is a supplier of foreign technology’s key components as well and Russian software product developers have significantly contributed to global software production. More information on the ways the lack of Russian components will likely affect the global high-tech industry can be found in the article posted by Lenta.ru.

Chips

“Our former partners don’t the sanction packages seriously because they do not seem to understand a number of obvious things. All restrictive measures implemented against Russia are now backfiring: productions are getting shut down, job cuts in the Western countries, including the United States, are already part of the reality,” says Artem Kiryanov, Deputy Chairman of the State Duma Committee on Economic Policy. The expert believes that the global high-tech industry will face major challenges due to the absence of Russian components that are essential for critical goods production.

Russia could restrict export to the USA and other unfriendly countries of chemicals used in chip manufacturing as a response measure. U.S. authorities, concerned by the matter, have already warned the manufacturers that the exports of key materials may soon be restricted. The report that was posted by Techcet, a research company, in February and argued various semiconductor manufacturers’ dependence on Russian and Ukrainian materials, intensified the concerns.

According to the report, 35 % of U.S. palladium supplies come from Russia and over 90 % of neon, from Ukraine, where it is purified after being sourced, once again, from Russia. Two Ukrainian companies, Cryoin and Ingas, situated in Odessa and Mariupol, respectively, previously received unpurified neon supplies; however, both companies have halted their operations.

“The global chip production risks being stalled” amid Russia’s retaliatory sanctions, therefore, “the West risks becoming the victim of its own sanctions and experiencing severe shortages of indispensable resources,” says Vadim Glushchenko, Director of the Center for Global IT Cooperation. He is certain that Russia can fight back against the sanctions.

Microelectronics and aircraft industry

Many experts say that upheaval awaits the global microelectronics market as well. Today, Russia produces 80 % of sapphire substrates, which are used in optoelectronics and microelectronics and help to form layers of materials (e.g., layers of silicon). They are used in every single processor, including the ones developed by AMD and Intel.

Our country is also leading the way in etching microchips with ultrapure components. 100 % of the global earth metals supplies used for such purposes are controlled by Russia. Therefore, the import ban on Russian products will lead to a retaliatory export ban on Russian semiconductor manufacturing components, resulting in acute processor shortages all over the world.

However, Western countries run an even bigger risk, since they may also lose the supplies of Monocrystal, a Stavropol-based company and global leader in the production of sapphire—key component in light-emitting diodes and consumer electronics manufacturing. Today, the company exports its products to more than 200 consumers in 25 countries.

Apple, for example, purchases over 20 types of its products’ components and consumables, such as tantalum capacitors and ultrapure tin, later used as a solder, in Russia. Moreover, the equipment it gets for cutting sapphire glass with laser comes from the Leningrad Laser Systems company located in Saint Petersburg.

Russia’s technological advances are crucial to one other production area besides IT—the aircraft industry. Boeing and Airbus are getting titanium components for their airplanes from Russia, and our titanium machining technologies are still unmatched. This is why the aerospace companies can purchase a number of complex titanium components in Russia only. The project of Boeing factory located in Ellington, Texas, was designed with the assistance of Russian companies and Boeing’s engineering center that is located in Moscow and has employed experts that have participated in over 250 projects, including the design of the Boeing 787 Dreamliner and Boeing 747 Dreamlifter—the company’s latest aircrafts.

Apparent dependency

Many experts say that, while it is obvious that the West depends on Russian components, Russia’s dependency on Western products is exaggerated. Despite restrictions on supplies and services, Russia’s IT industry stays resistant to dramatic changes and capable of both refocusing on cooperation with other promising markets (e.g., the Asia-Pacific region) and addressing present-day challenges, such as internal resources issues.

According to Ilya Massukh, head of the Competence Centre for the Import Substitution of Information and Communication Technologies, “for many Western companies, Russia has been a significant, high-quality software and hardware market.” Russia has always been the place where major companies would open regional offices, people would get hired and development centers working on global software and hardware production advancement would start operations.

“They have a lot to lose in terms of Russia’s strong intellectual potential,” says the head of the Competence Centre. “According to our information, there is a significant number of employees that cannot be relocated from Russia to other countries for various reasons. Less than 10 % of employees are actually leaving the country.”

Ilya Massukh adds that the market itself—a market that uses real money instead of credit money, the latter being a common practice in the West—is not the only thing that Western software companies will lose. The expert notes that Russian developers have made a very meaningful contribution to the market and replacing them by Indian or Chinese developers is hard, because “as we all know, Russian developers, unlike many foreign developers, are able to solve issues arising throughout the process.” Therefore, Western program products will likely be degrading in a way, the expert says.

“However, that is not our concern. We need to develop our own products. Thankfully, many teams have not left the country and are now successfully provided with work,” the expert adds. Refocusing the teams’ attention on domestic needs will lead, in his opinion, to the faster development of Russian program products that will lately fill the gaps.

Without regard for someone else’s interests

Most experts say that sanctions have given unmatched impetus to import substitution in all industries and that restrictions have only served as a reason to accelerate and intensify economic processes. The state is more than ready to provide financial and other support for important and indispensable products. This applies not only to major projects but also to startups.

According to Artem Kiryanov, Russia will finally be able to “use its potential without regard for someone else’s restrictions or interests,” and this includes not only using its intellectual and technological potential, which is, in his opinion, very high, but also harnessing natural resources and manufacturing facilities.

“Since we were limited by the WTO requirements and many other formats, we were holding back for a rather long time” —the expert believes— “and we should use the time we have now to change the geography of supplies and set completely different prices for what’s produced in Russia and extracted from underground on our territory.”

https://lenta.ru/articles/2022/04/22/itprblms/?utm_source=yxnews&utm_medium=desktop&...