Soviets Seek High-Tech Ventures
While Soviet President Mikhail S. Gorbachev was meeting with business leaders in San Francisco, 11 Soviet scientists were combing Silicon Valley, seeking joint ventures with computer and software companies.
The group, which included representatives from the Soviet Academy of Sciences, came to the Bay Area for the “Soviet Silicon Summit for High-Tech Trade,” sponsored by Global Development Corp. of Santa Clara. It also participated in a June 8 seminar, “Doing Business With the Soviets,” that Global Development conducted for the benefit of Silicon Valley firms.
As Gorbachev has repeatedly indicated, the Soviets have a strong interest in American computer technology. The Soviet Union has only limited capacity to produce IBM-compatible PCs. The current five-year economic plan calls for producing 6.3 million machines between now and 1995. Most will be IBM XT-compatible systems, although there will be some production of 286- and 386-based PCs. The demand for PCs far outstrips domestic capacity. Dataquest estimates that the Soviets will import 28 million PCs by the end of the century.
Alexandre Giglavyi, affiliated with Moscow State University, told me that there are between 500,000 and 600,000 PCs in the Soviet Union. Most are IBM-compatible, although a large number of machines are based on a Japanese design that uses the CP/M operating system, which is virtually obsolete in the United States.
About 100,000 computers are used in homes, Giglavyi said. Most home PCs, typically 8-bit systems equipped with cassettes to store data, are primitive by Western standards. Even floppy disk drives are luxury items.
There are Soviet clones of several popular U.S. designs, including the Commodore 64 and the Apple II, but IBM-compatible machines are priced beyond the reach of average citizens. An AT-compatible with 1 megabyte of random access memory and a 20-megabyte hard disk costs 60,000 rubles. That, according to Giglavyi, represents “20 years pay of an average worker.” Bargain hunters can buy an XT-clone for 35,000 to 45,000 rubles, he said.
Giglavyi expects Soviet industries and government agencies to need more than 11 million PCs between now and 1995, while education will need 17 million to 18 million. This is far beyond the domestic capacity--and thus good news for Western companies seeking to penetrate the Soviet market.
A Dataquest report, “The U.S.S.R. PC Market,” estimates 1990 Soviet imports at between 5,000 and 15,000 386 PCs, 100,000 to 200,000 286 machines, 10,000 to 30,000 PC/XTs and 4,000 to 8,000 Apple Macintoshes. Older-style 8-bit computers account for 2,000 to 4,000 imports, according to Dataquest.
Several American firms have made inroads into the Soviet Union, but U.S. security regulations have restricted exportation of the most desirable high-end systems. That, however, is changing. The United States, as of July 1, will decontrol export licensing requirements on most personal computers, including 386-based PCs (up to 33 megahertz) and all current-generation Macintoshes (up to 40 megahertz).
Giglavyi expects schools to purchase a large number of IBM PS/2 Model 25 systems, but he also anticipates strong sales of machines to smaller companies. He characterized IBM as a “huge bureaucracy” that is “very difficult to work with.” He was referring to the company’s inability to make quick policy decisions. I found it ironic to hear a Soviet official accuse an American company--even IBM--of being too bureaucratic, but I was equally surprised at the Soviet visitors’ entrepreneurial-style ability to make swift business decisions in their negotiations with Silicon Valley firms.
The Soviet delegation to the Silicon Summit wasn’t window-shopping. Its leader, Nicolai Kleschev, who heads the Academy of Science’s International Center for Informatics and Electronics (InterEVM), signed letters of intent to create joint ventures with at least three Silicon Valley firms. Letters of intent, which indicate a willingness to do business, are not necessarily binding and are subject to further negotiations--but they are nonetheless concrete steps toward deals.
In each case, the Soviet-U.S. agreements called for bilateral exchanges. The Soviets are, admittedly, behind the West in manufacturing and distribution, but Academy of Science institutes are engaged in state-of-the-art software development and semiconductor research. The Soviets are not interested in being passive customers. They are looking for joint ventures.
Kleschev signed an agreement with Sunnyvale, Calif.-based Fortrend Engineering Corp. to develop and manufacture a product based on Soviet innovations in cleaning surfaces such as semiconductor wafers and optics. A deal between Kleschev and Cypress Semiconductor would give the Silicon Valley firm a license to use chips designed by an agency of InterEVM.
One agreement is expected to generate a line of Soviet-American PCs called the Perestroika Computer. Fortron/Source, a Livermore, Calif.-based PC manufacturer, signed a letter of intent with InterEVM to produce 286 and 386 PCs to be distributed in the United States and Soviet Union. The machines, according to Fortron/Source international sales manager Linda Janssen, will initially be manufactured and assembled in California, but long-term plans call for the development of Soviet-based manufacturing facilities. The tentative agreement also calls for Fortron/Source to help manufacture and market a Soviet-designed video display adapter and to import dynamic random access memory and other chips from the Soviet Union.
A major barrier to U.S.-Soviet trade is the Soviet Union’s lack of hard currency that can be converted to Western funds. The problem calls for creative solutions. Televideo founder Philip Hwang, who attended the one-day seminar, told me that his company found itself investing in Soviet hotels and leather processing plants to help Soviet organizations generate the cash necessary to buy his company’s computers. Other American companies are entering into barter arrangements involving the exchange of their manufacturing and distribution know-how for Soviet software, raw materials, brain power and labor.
If you missed the Silicon Summit, don’t despair. There will be plenty of chances to meet with Soviet scientists and computer enthusiasts, especially if you’re willing to travel to their turf. International Data Group (which owns PC World, MacWorld, InfoWorld and other computer magazines) is sponsoring a PC World Forum in Moscow July 10-15. Orbis International is sponsoring Informatika ’90 in Moscow Oct. 11-18 and, closer to home, Global Development plans to offer follow-up Soviet-American PC summits this fall.
For more information, contact Global Development at (408) 562-6230, International Data Group at (800) 225-4698 or Orbis International at (415) 367-6543.
