Ukraine IT Landscape:
Hardware Manufacturing

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The Ukrainian PC market features world-leading brands of hardware and software. Although most of the equipment and software available on the shadow market is of unknown origin, most of the leading Ukrainian distributors and resellers prefer either known brands or equipment locally assembled from imported components. There is an increasing presence in the Ukrainian market for Compaq, Microsoft, Oracle and Informix.  Differing from the PC and software market - where the share of dubious equipment and illegal software is high - the market of telecommunications hardware and software features only well known brands such as Lucent Technologies, Motorola, Ericsson, Nokia, Philips, Alcatel, and Siemens. While Lucent, Alcatel and Siemens dominate the market of switches and exchanges, Ericsson, Nokia, Motorola and Philips are more visible on the hardware market for wireless communications. Ukraine-made equipment is also present, especially in the local loop level. A number of projects that are under way will introduce to the market equipment manufactured by Qualcomm and Hughes Network Systems.  Data transmission networks use equipment manufactured by Cisco Systems, Hughes Networks Systems, Microcom, Motorola, US Robotic, IDC, ZyXEL, EDA, Eicon Technology, Telindus, Fore Systems, etc. 9 The exact size and structure of the Ukrainian computer hardware market is difficult to measure, as official statistics ignore such key factors as local production, and shadow imports of components. However, local production based on imported components is thriving and reshaping the market. Based on data provided by market insiders, rate of importation of finished (assembled) "brand name" computer equipment has been decreasing by 10 percent annually, and importation of "non-brand name" computer equipment has been decreasing by 15 percent per year. This decline in imports of finished computers (both brand and non-brand) is mostly due to higher rate of taxation of imported finished PCs versus imported components. At the same time, demand for locally manufactured computer hardware (i.e. from imported components) is steadily increasing, and reached 75 % of total market share in the year 2000. 10  Of the approximately 700 companies currently operating on the local computer market, 66 are engaged in local assembly or manufacturing of PCs. 80% of these computers are Intel based. Due to higher rate of taxation of imported finished PCs versus imported components, local production using imported components is thriving and reshaping the market. The other 634 companies focus on distributorship, resales, system integration, computer upgrades and sales of peripherals. Industry experts estimate that only 10-15 percent of Ukraine's potential computer hardware demand has been tapped. The key problem is the lack of purchasing power of consumers, plus the lack of consumer credit for installment purchases. The market trends are as follows:  Falling prices for expensive PCs ($1,500-$3,000) versus 10-20 percent increase in prices for low-end equipment ($1,000); A growing interest in units with limited memory (64 Mbit or lower);  Focus by local computer manufacturers on computer solutions, rather than on hardware sales; Decreasing share in desktop systems, and increasing sales of portable systems and servers. Brand-name recognition of major U.S. computer manufacturers is strong, but pricing is still the key consideration for the Ukrainian purchaser. Major local companies sell between 10,000 to 20,000 PCs annually. Although increasing rapidly, home use of PCs is still limited to 10-15% of computer users. U.S. companies can access the Ukrainian market by tapping into an increasingly sophisticated network of agents and distributors throughout Ukraine who are able to reach a wide range of clients.11 Market Size Data:  1998  1999  2000  2001  2002 Total Market Size  (US$ M):  119  160  169  209 260 Total Market Size (1,000 units):  102  142  155  196  251 Total Local Production (1,000 units): 79  96  117  143  180 Total Imports (1,000 units):  23.3 28.5 38.5 53.1 70.7 (Source: IDC, Compyuternoye Obozrenye, No. 4, 2000 and No. 49, 2000) Notes:  1. Sales projections for 2001 and 2002 assume continued 4-6% economic growth, and market liberalization 2. Final figures for year 2000 were not available when this report was prepared 3. Import data reflects not only finished computers, but also computers imported as components 5. U.S. investors and equipment suppliers are urged to exercise caution before concluding investments in Ukraine. Post suggests consulting the Country Commercial Guide available at: <http://www.usatrade.gov/> and discussing the prospective investments with Embassy staff, the American Chamber of Commerce, accounting firms, legal counsel and other sources.

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