Western sanctions have made it hard for Russian companies to get semiconductors, electrical equipment, and the hardware they need to run their data centres. This has led to a technological crisis in Russia.
Most of the world’s biggest chipmakers, like Intel, Samsung, TSMC, and Qualcomm, have stopped doing any business with Russia after the US, UK, and Europe put restrictions on the export of products with chips made or designed in the US or Europe.
This has caused a shortage of the larger, lower-end chips that are used to make cars, home appliances, and military gear. The supply of more advanced semiconductors, which are used in high-tech consumer electronics and IT hardware, has also been cut back a lot.
And the country has lost almost all of its ability to import foreign tech and equipment with these chips, like smartphones, networking equipment, and data servers.
One Western chip executive said, “Whole supply chains for servers, computers, iPhones, and everything else are gone.”
Because of President Vladimir Putin’s war in Ukraine, the west has put in place a huge number of sanctions that have never been done before. These sanctions are forcing Russia to go through what the central bank called a painful “structural transformation” of its economy.
Economists think that Russia’s gross domestic product (GDP) will fall by as much as 15% this year because the country can’t export many of its raw materials, import important goods, or get to the world’s financial markets.
Export controls on “dual use” technologies, like microchips, semiconductors, and servers, which can be used for both civilian and military purposes, are likely to have some of the worst and most long-lasting effects on Russia’s economy. The country’s biggest telecoms groups won’t be able to get their hands on 5G equipment, and tech leader Yandex and Russia’s biggest bank, Sberbank, will have trouble expanding their data centre services.
Russia doesn’t have a high-tech industry, and less than 1% of the world’s semiconductors are used there. Because of this, technology-specific sanctions have had much less of an immediate effect on the country than similar export controls did on China, the world’s biggest maker of tech, when they were put in place in 2019.
Even though Russia has a few chip companies of its own, such as JSC Mikron, MCST, and Baikal Electronics, Russian companies used to buy a lot of finished semiconductors from foreign companies like SMIC in China, Intel in the US, and Infineon in Germany. Most of the chips that MCST and Baikal have designed have been made by foundries in Taiwan and Europe.
RBC, a business news site, reported that MCST said on Monday that it was looking into moving its production to Russian factories owned by JSC Mikron. There, it said it could make “worthy processors with Russian technology.” But Sberbank said last year that MCST’s Elbrus chips “catastrophically” failed tests, showing that their memory, processing, and bandwidth capacities were much lower than those made by Intel.
As a result, the Kremlin is having to come up with new ideas. Russia started a new import scheme this month that lets companies “parallel import” hardware from a long list of companies without the permission of the trademark or copyright holder. This includes servers, cars, phones, and semiconductors.
Russia has always been able to get some of its technology and military equipment through unofficial “grey market” supply chains. It did this by buying Western products from resellers in Asia and Africa through brokers. But because there aren’t enough chips and other important IT hardware in the world, even these channels have dried up.
The head of the Internet Research Institute in Moscow, Karen Kazaryan, said that some companies have set up shipments from Kazakhstan. “Some Chinese companies in the second tier are ready to sell. There is a stockpile of parts in Russian warehouses, but it’s not the amount they need, it’s not stable, and the prices have gone up at least twice.”
Officials in Russia have also thought about moving production to foundries in China, but there isn’t much evidence that Beijing will help.
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