Обзор "Рынок ИТ: Итоги 2005" подготовлен	При поддержке

CNews100: The first billion

The economic growth in Russia encourages consumption boom including the consumption of high-technology products. It is for the first time that the CNews100 leader’s revenue has passed the $1 billion mark. The previous growth indexes which appearingly came to be almost out of place in Russian market have become real again. Along with its consolidation Russian IT business is developing. However, it is still concentrated in two ‘capitals’.

Following the results of 2005, the joint revenue of the top100 Russian IT companies increased by 37.7 % as compared with 2004, exceeding 296 billion rubles. It is remarkable that last year the growth rates slump from «common average» 40 % down to 14.4 % gave concern to analysts and touched off rumors about natural satiety. Nevertheless, an extremely favorable raw materials business environment in the world market along with vast Russian resources produced such a positive effect that Russian IT industry appeared resistant to any structural restraints and showed an incredible upswing.

«Plummeted» down to 14.4 % in 2004, CNews100 revenue showed an upturn by 37.7 % in 2005

The source: CNews Analytics, 2006

Foreign analysts were also astounded by high indicators of Russian IT market. According to IDC, in 2005 its output grew by 25.4 % and amounted up to 12 billion USD. The official figures by Mininformsvjaz proved more moderate: the growth of 20.2 %, the turnover of 11 billion USD. By the way, an unexpected upswing hasn’t influenced much analysts’ long-term forecasts. As IDC claims that over the next 5 years the average growth rate of Russian IT market will make up about 19 % a year.

Anyway, the expected and already launched consolidation and reforming of a large-scale business in Russia, as it seems, will retain high growth rate indicators of the IT industry. The consolidation of «Gasprom» and «Sibneft», active buying–up by «Rosoboroecsport» of the country’s industrial assets, setting-up of the consolidated aircraft-building corporation, etc. — orders of exactly these «new» public giants are likely to become a highly enriched fuel for Russian IT market over the next years. At that, a general economic growth prompts the development of small- and medium-sized business which is by far more flexible in decisions concerning realization of one or another technology.

«Fragile» foundations

Despite high indexes of the IT industry it is important to realize that without a sound public policy in the IT sphere oil prices will remain the main catalyzator of the IT market development. However, the long-running world fever by no means guarantees its stable progress, while this kind of economic dependence leaves much to be desired. According to Mininformsvjaz, in 2005 the ICT share in Russian GDP amounted to 5 % which is only 0.2 % higher than that in 2004. Besides, by the year of 2010 the ICT share in GDP will climb to 10 %. However, a material share in GDP is accounted for Russian telecom receipts which rose by 31.4 % and reached 25 billion USD in 2005. According to analysts’ estimation, only the IT share in GDP barely topped 1 % over the accounting period. The same indicator for the USA and China exceeds 5 %, while for Ireland reaches almost 12 %.

Evidently, resource economic orientation is absolutely incompatible with the intellectual potential of Russia. Surely, we can’t but take into account massive economic and political upheavals over the last 15-20 years when the present-day world IT leaders worked hard to establish their potential. Nevertheless, there are many obstacles on the way of further IT market development. The major of them are lack of an adequate legislative framework and working venture investments mechanism, extreme slackness of officials, deficit of highly-qualified employees in the IT market, etc. It is the government alone which is capable of breaking down all the obstacles. At the same time we can’t say that it ignores the IT industry — reasonable and practical propositions are pushed forward more often. Technology parks, special economic areas, venture capital trusts, tax reductions among them. However, the realization is carried out at rather a low pace. For example, at the visiting session of the State Council devoted to IT in February the president had to give instructions on technology parks for the second time. He already did it for the first time the very same day the year before.

The recent officials’ initiative was the offered by deputies amendment to act «On information, information technologies and information security» calling for a ban on applying «foreign software and hardware tools in strategic sectors and specially important enterprises of Russian Federation» to provide them with information security and to protect from foreign intervention. The initiative as it is, right in its own way, will not only be useless for domestic developers, but also can plunge into a deep depression a great number of IT market players, both consumers and contractors. The change of a large system software base and information facilities, installed on the state-run enterprises corresponding to the above-mentioned description may entail huge financial losses which won’t be beneficial to «strategic and especially important enterprises of Russian Federation». It is remarkable that according to the definition by the initiators of the amendment, the deputies Gudkov and Hinshtein, power suppliers and telcos are reckoned among those enterprises.

The CNews100 rating illustrates well enough the dynamics of the driving force in the IT market — hundreds of major companies. Extremely high growth rate, considerable turnover — these are their indicators even in light of the above-mentioned problems. The major IT players try to solve some problems themselves, within their powers. For example, many of them cooperate with Universities and establish their own educational centres to train IT specialists of the needed qualification. However, they are not capable of handling the problem of setting up a fundamental IT education nationwide. Yet, there are lots of such problems. Only the government can guarantee a steady development of this industry.

Consolidation continues

The top10 IT companies of CNews100 are improving their rating. Following the results of 2005 they account for 57 % (169 billion rubles) of the CNews100 total turnover. The market concentration is still under way, though not that rapidly as it used to. In 2002 the «top10» accounted for 49.1 % of the turnover, in 2003 — for 54.6 %, and in 2004 — already for 56.2 %. The situation with the «top20» is similar — over the accounting period these companies gained 216 billion rubles or 72.9 % of the total receipts of the rating participants.

«Top20» continues its onset

The source: CNews Analytics, 2006

Over the last year the companies entering the top10 showed rather a vast spread in the dynamics of their turnovers — from –29 % («Sibintech») to 734 % («Parma-Telecom»). The price of joining CNews100 almost doubled — from 115 mln rubles in 2004 to 227 mln rubles over the accounting period. It is noteworthy that the upper half of the rating is restricted to a symbolic 1 billion rubles and topped by «Fors» group which managed to gain 1.05 billion rubles in 2005.

Integrators are losing their positions

Integrators keep on dominating in CNews100 in number which, however, dropped from 49 to 43. At that, the integrators yielded the palm in receipts: whereas last year they accounted for 40.2 % of the CNews100 total turnover, in 2005 the corresponding indicator was 35.6 %. Meanwhile, the share of mixed capital companies rose from 32.3 % up to 37.6 % over the accounting period. The share of domestic software developers decreased as well — from 6.2 % down to 5.1 %. Unfortunately, software of domestic production has a bad rating and can hardly compete with continuously increasing supply from the west. Still, some positive changes have already been outlined — against the periodical forecasts about the final curtailment of corporate solutions development in Russia. By way of example, one of the major projects in 2005 was installation of the automation system on the base of «1C:Enterprise8.0» in «Mezhregiongaz» comprising more than 8 thd workplaces. Reasonable government protectionism could be of a help to domestic developers, though it is hardly expected in the near future.

Software developers in this country still earn less than other IT companies

The source: CNews Analytics, 2006

The Regional Three

The number of regional companies in CNews100 grew from 24 % to 29 %. Companies from St. Petersburg retained the leading positions (10 %), however, their share in the regional turnover dropped from 50.1 % to 44.8 %. The contribution to the total return from Novosibirsk decreased as well — from 24.5 % down to 19.7 % assuming that this region retained the second position in terms of a number of players entering CNews100. Alternatively, shares of Yekaterinburg rose from 4.9 % up to 7.6 %, as well as of Nizhniy Novgorod — from 3.4 % up to 4.4 %. Tomsk joined the rating for the first time.

Regions are gradually gaining their place

The source: CNews Analytics, 2006

In 2005 the three regional CNews100 leaders retained their ranks

The source: CNews Analytics, 2006

Diversification for the sake of safety

Following the results of 2005 the growth rate leaders among the companies entering CNews100 became holdings with the total revenue increased by 59.5 % against the rating of 2004. At the same time, the turnover of consulting companies in CNews100 rose by 38 % over the accounting period, what is rather modest against 103 % shown a year before. However, consulting is one of the priorities for the companies growing by means of consolidation. Surely, the rundown of purely consulting players in CNews100 doesn’t imply a decline in their business. A number of them now show income as part of the holdings expanding by mergers and take-overs

For the first time the income from «pure integration» yielded to the multifield holdings revenue

The source: CNews Analytics, 2006

Out of the two tendencies, which, according to the forecasts in 2005, could define the further development of the IT industry, only one — consolidation — proved to be influential in the long run. This strategy allows companies to establish their position and to diversify business. The beginning of 2006 showed that the target pace and range of mergers and take-overs wouldn’t decrease so far. On the other hand, the proclaimed readiness of IT market leaders for stock issues almost trailed off into futilities. IFC «Sistema» already conducted a large-scale issuing transaction, whereas «Compulink», at the top of its voice announcing IPO plans, postponed its campaign till 2006. Evidently, unreadiness of Russian IT companies for IPO is quite explainable — it is not that easy to set up quickly a transparent billion-making business. Many people keep thinking that they don’t need it at all. As opposed to the IPO-oriented retailers, Russian IT companies are seeking other ways of development. It is still unclear how risks are calculated in case of a possible outflow of petrodollars.

Ashot Oganesyan, Maria Popova/CNews Analytics