Russia’s attack on Ukraine will seriously disrupt and undermine both countries’ tech industries, due to warfare in Ukraine and the effect of sanctions in Russia. Beyond these two countries, the global tech sector may experience shortages of some strategic materials (neon and palladium), some loss of market opportunity, but also possible disruptions to software development supply chain.

The greatest impact on Russia’s technology sector come from the ban on semiconductor sales imposed by the US in conjunction with similar measures by the EU and Japan. As the United States’ semiconductor sales restrictions on Huawei have shown, the US practically controls the semiconductor manufacturing industry through its control of essential US-made tools and software.

Banning the sale of US technology, therefore, directly translates into halting the sales of semiconductors – and all equipment containing semiconductors – to the affected country or entity. Any infringement of the sanction regime extends the sanctions to the infringing entity, as when sanctions on Huawei were partly justified by the company’s alleged violations of sanctions imposed on Iran.

Russia’s tech sector will suffer as sanctions bite

The reaction of global semiconductor manufacturers has been quick – major vendors like Intel, TSMC, and Global Foundries have confirmed that they will comply with the sanctions regime, and have begun halting shipments to Russia. The reaction of Chinese semiconductor vendors – most importantly SMIC – is uncertain, given Chinese reservations regarding the sanctions regime.

If they do not observe the sanctions, the effect will be limited: SMIC’s processes that don’t rely on Western technology are not sophisticated enough to power cutting-edge electronics, though they might be sufficient for the car industry, or some military applications. Russia’s own indigenous semiconductor industry is embryonic, its products are viewed as inferior to technologies now under sanction, and in some cases it relies on manufacturers like TSMC.

The resulting restrictions will thus impact all segments of the technology sector and market,  from consumer electronics to telecommunications equipment. For the latter, Russia will likely still be able to rely on Chinese manufacturers using indigenous semiconductors – but the financial sanctions will make it harder for Russian buyers to trade with their partners, while the crash of their domestic currency and stock market will constrain their spending.

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Ukraine tech sector could see a rapid recovery

On the Ukrainian side, war will disrupt the technology sector as it has everything else in the country, but unless Russia occupies the country for an extended period, the country’s technology sector will likely recover quickly once the hostilities cease, likely with influx of aid and investment from abroad. For technology markets globally, the semiconductor manufacturing sector may experience shortages of neon gas (produced in Russia and refined in Ukraine) and the rare metal palladium.

Software development disruption

Another, perhaps more insidious, disruption comes from the fact that both Ukraine and Russia have been a source of proficient and cost-competitive software development expertise.

Now, the development centers of Western companies in Ukraine and Russia are facing serious disruptions in their operation, either from the effects of hostilities on the ground, or from the sanctions’ regime. These disruptive effects are hard to gauge, and may take some time to materialize in full. The full disruption of the software development supply chain may be profound and far-reaching.