Russia

Tech industry monitors sanctions on Russia, but experts warn of risks

March 31, 2014: 10:43 AM ET

Technology companies are saying little about the standoff between Russia and the West, but that doesn't mean there won't be problems down the line.

By Zack Whittaker

Customers browse Nokia Lumia smartphones for sale inside a Svyaznoy NV mobile phone store in Moscow in February 2014.

Customers browse Nokia Lumia smartphones for sale inside a Svyaznoy NV mobile phone store in Moscow in February 2014.

FORTUNE -- U.S. technology companies remain silent in the wake of the sudden and escalating standoff between the U.S. and Russia over the latter's annexation of Crimea in Ukraine, but experts say that economic sanctions could still impact their operations in the country.

As U.S. president Barack Obama and Russian president Vladimir Putin traded barbs in public, diplomats and government officials from both countries were added to domestic lists banning travel and other activity. Further sanctions, including trade embargoes and import and export sanctions, are being explored by the U.S. and the European Union.

Last week, Western businesses were caught in the fray for the first time when the financial services firms Visa (V) and MasterCard (MAwere forced to cease serving four Russian banks targeted by the first wave of sanctions. The news suggested that global tech companies were also at risk.

Mum's the word

Technology companies in Silicon Valley and elsewhere in the U.S. remain mum on the subject -- and when they don't, they say only that they continue to monitor ongoing developments.

A Google spokesperson declined "to speculate on these matters" in response to a Fortune inquiry on the subject. Spokespeople for BlackBerry (BBRY), Dell, Hewlett-Packard (HPQ), and Lenovo -- all of which sell technology to governments in the West and to Russia -- declined to comment. Microsoft and Nokia said they were unable to provide comment; Apple (AAPL) and VMware (VMW) did not return requests.

MORE: Time to invest in Russia?

Cisco (CSCO), which has an office in Kiev and sales offices in Russia, said it continues to remain open and is conducting "business as usual," a spokesperson said. "We will continue to watch closely for any impact to our employees, customers, or business," he added.

An Intel spokesperson said only that the company was "following the developments abroad." Intel has four offices in Russia with some 1,000 employees, mostly software engineers. "We will continue to track the situation," she added.

A spokesperson for Kaspersky, the U.K.-registered online security firm with headquarters in Moscow and offices in the U.S., said the company "doesn't have political ties to any government" and that U.S. and EU sanctions levied to date "do not directly affect" its business or customers.

Limited impact

Global technology companies have only a small impact on Russia's overall economy, despite the country's recent status as a high-growth "BRIC" economy.

Russia's IT spending was $34 billion in 2013, a mere 1.7% of Russia's economy, according to the market research firm IDC. Russia is the 15th-largest smartphone market and fifth-largest tablet market in the world. More than two-thirds of Russia's IT spending is on hardware, with PCs, smartphones, and tablets taking up the greater proportion.

MORE: The Kremlin drops Apple iPads, buys Samsung Galaxy tablets

"Manufacturers of [Google] Android devices probably have the most to lose from the current economic and political volatility," IDC's Mike Shirer said, "followed by PC manufacturers."

Still, Russia's $2 trillion economy is dangerously close to falling into recession and "surely cannot win a financial [or] economic sanctions war," Standard Bank analyst Timothy Ash wrote in a March 11 note to analysts.

Risky business

But industry experts warn of continued risks from hostile Russia-U.S. relations and say that Western tech companies had already begun to turn their back on Russia, citing instability and a hostile business environment.

According to IDC regional director Robert Farish, the annexation of Crimea "comes at a time when many large players were already recalibrating their plans for Russia." The rate of growth of IT spending in Russia since 2011 has been falling, Farish said, and was likely to continue doing so in 2014 without the Crimea development.

MORE: What U.S. sanctions against Russia will (really) do

"The kind of thing the U.S. would probably do first is to prevent the export of certain kinds of technologies to the Russians, the kind of thing we used to do during the Cold War," said Mark N. Katz, professor of government and politics at George Mason University. If Russia were to respond, U.S. companies could begin to "experience problems," he added.

"You might find that Moscow suddenly finds that these U.S. companies 'owe taxes,'" Katz said.

Moreover, continued tension between the countries could prompt Russia, the world's ninth-largest country by population, to build "U.S.-free" technology products much like China has successfully done, Farish said.

"Sanctions or no sanctions," he said, "I think current events will be damaging in the long term for the business that U.S.-based tech multinationals do there."

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