'Russia's invasion of Ukraine is set to cause shockwaves throughout the IT channel' - CONTEXT

Adam Simon, global managing director, CONTEXT

After Russia's invasion of its near neighbour, Western countries acted swiftly and decisively to levy severe economic sanctions against the Putin regime. These will have a significant impact on the IT channel. But there are other dimensions to consider, not least the tech companies with offices and facilities in Ukraine and the supply of raw materials from that part of the world.

The situation is extremely volatile, and it is still early days in the conflict. However, there are a few points which we can reflect on from a purely analytical perspective of the European IT distribution market.

Sanctions and supply

The global financial system has undergone unprecedented change as seven Russian banks were locked out of the SWIFT inter-banking network. This will make cross-border payments extremely challenging if not impossible for channel players and their customers. At the same time, the EU and US has banned the supply of hi-tech goods including semiconductors, computers, telecoms and information security equipment. Russian aircraft are also banned from European airspace, and Boeing/Airbus have stopped servicing the Russian aviation industry, which will further restrict transport flows.

Several big tech companies including Cisco and HP have developer hubs in Ukraine, which will be impacted by the invasion. Our thoughts are with all of those caught in the conflict. There will also be a significant but as yet unquantifiable impact on the supply of certain materials from the region. Ukraine supplies 90 per cent of America's neon, which is critical for the lasers used in chipmaking. Around half of Intel's supply comes from the region. Russia is a major producer of Palladium, a metal present in a variety of electronics equipment, where it's commonly used as solder.

In terms of logistics, the war will add further costs to the transportation of goods, as air space is closed and shipping lanes in the Black Sea are restricted. Some reports claim shipping rates could double or triple, while air freight rates could go even higher.

Exposure to the Russia market

As sanctions bite, it's important to understand the IT channel's risk exposure to Russia. It is a significant market around the same size as France, accounting for around 8 per cent of the overall European IT distribution market. Interestingly, revenue sales in Russia surged 35 per cent year-on-year in January after the usual post-Christmas lull. This may well indicate that some companies were stockpiling, as they sensed turbulence ahead.

According to CONTEXT data comparing the percentage share of key sectors in Europe versus in Russia, it's clear that infrastructure and security is particularly exposed to the Russian market. Whilst representing just 14 per cent of the European market, sales in this category account for 28 per cent of the total in Russia. On the other hand, the software and licenses and telecoms categories are less exposed. The percentage point difference between Europe and Russia in the former is -7 per cent and the latter is -9 per cent, driven by the fact that the preference in Russia is for mobile phones rather than smartphones, and for local vendors.

In terms of the big tech vendors, Apple and Microsoft are less exposed than most. Apple had a 13.2 per cent share of the European distribution market in 2021 but just 2.5 per cent in Russia, while Microsoft's figures were 4.4 per cent and 1.7 per cent respectively.

We'll continue to monitor these markets closely, bringing the data IT channel stakeholders need at this unprecedented time during our weekly IT channel webinars.

Adam Simon is global managing director at CONTEXT