Russia has a chip problem. As in Soviet times, national science and technology development is faltering under the heavy hand of statel; the implications for the national economy are dire. 

Formed around 1960, the microchip industry is the foundation of modern computing. To fulfill its needs, the world produces over a trillion chips per year. These electronic components that store operational instructions and temporary data have transformed all aspects of modern life. The production and control of microchips organically links with technological advancement, economic prosperity, and national security, and have become a pillar of geopolitics.

Concern over the coming digital age and the technology gap between the USSR and the West, the KGB established a department T Directorate in 1963. The sole purpose of this unit was to steal the latest technological information and know-how from abroad. The bootlegging strategy had passable results early, however it lacked long term sustainability. As Silicon Valley continued to advance, it became clear that the Soviet counterpart would forever lag behind.

Approximately 50 percent of stolen military secrets during the previous Cold War were of no use to Soviet military planners because the technology was too advanced. Some Warsaw Pact specialists even believed that actual stealth designs in the early 1980s were part of a disinformation scare campaign planted by the CIA.

Against a tide of difficulties, Russian scientists and technicians lumbered along until efforts finally collapsed after the fall of the Soviet Union in 1991. Many firms and design centres found themselves outside Russia as a result. Those that remained languished or closed. What survives is a production capacity that is inadequate for fabricating high-performance processors for general use.

In the succeeding decades following the fall of the USSR, imports accounted for virtually all of the country’s microchips. The Soviet-era microelectronics industry could not compete with international manufacturers. In the post-Soviet era, the legacy of outdated equipment and lack of skilled personnel continued to bedevil attempts by Russia to stand up a domestic, world class chip industry.

Mikron and Angstrem are Russia’s only high performance chip fabricating companies. Their parent company, T Platforms, declared bankruptcy in 2023 and auctioned off its fabless chip design subsidiary (Baikal Electronics). T Platforms failed because it relied on domestic technology. At its liquidation, the company was forced to repay a two and a quarter billion-ruble subsidy and the CEO was charged with misuse of office.

Since 2010, the extant microelectronics industry has been built from scratch. Export controls, economic sanctions, and isolation from international technology ecosystems have undercut the effort to establish a domestic and sovereign microchip industry. Vladimir Putin’s repressive security regime has created additional challenges. Restricted intellectual freedom and movement have put in motion a dramatic exodus of skilled scientists. Such strictures and policies will inhibit the technology sphere for years and exacerbate Russia’s backwardness.

These factors culminate in a troubling reality for Russia’s domestic chip industry. The fabrication process grinds along with an astounding 50 percent  defective rate. Such flawed quality control impacts the productivity of the entire industrial infrastructure. The forced pivot to China has not made a difference. Russia now imports 70-90 percent of its computer chips from the People’s Republic of China. Yet, due to the fear of secondary sanctions and national security concerns, Chinese replacement components are less advanced and have comparable defective rates.

By isolating Russia, the West has attacked a serious vulnerability. The sanctions are working but could be more effective. The importation of semiconductor material and fabrication equipment is half of what it was prior to the war, but still substantial. International collaboration is essential to the chip industry. If a Russian microprocessor developer were to find a foreign firm willing to risk sanctions and produce chips, it would require launching new production lines, and be no more economical than starting from the ground up. Building a microchip fabrication site costs time and money to coordinate designs, establish supply chains, and switch out legacy architectures and components.

In addition to these challenges, Russia’s central bank has raised the key interest rate to 21 percent. Profits do not cover the cost of loans. Thus, high-tech companies who pay premium wage rates due to the manpower shortages are crunched between an inability to finance long production cycles while forced to receive advanced payments of only 30 to 40 percent of sales.

The Kremlin’s solution appears to involve throwing more rubles at the problem. Since the imposition of sanctions, the Russian government has pledged to spend US$38 billion in its microchip industry by 2030. For comparison, the 2022 CHIPS and Science Act allocates US$280 billion to advance semiconductor research and manufacturing in the US. The legislation that includes a package of subsidies, tax credits, and grants for workforce development has already generated US$450 billion in private investments for US semiconductor production.

All this suggests that for the near and long-term future, Russia will be burdened with a microprocessor industry that cannot meet its needs. The computing power available to Russian companies, state agencies, and the larger society will continue to lag. The quality of life will most likely diminish and educated Russians will continue to seek opportunities abroad.

What does this mean for Putin? It means that time is not on his side. The deteriorating technological infrastructure and a reliance on costly, lower quality electronic components have aided in turning Putin’s “special military operations” in Ukraine into a black hole. The protracted conflict, the loss of pricey military hardware and inflation is costing Russia US$190 billion a year. The war now draws off 40 percent of the economy and raises the prospect of a devastating monetary overhang.

These structural weaknesses are echoes of the deep-seeded dysfunctionality that brought the Soviet Union to its knees. Corruption, inefficient management and production costs, isolation, and a reliance on extra-legal networks (tolkachi) to buttress an unreliable supply chain doomed the system. In today’s era when scientific discovery occurs in sudden time cycles, policies trail events and institutions can fall.

Putin lamented the demise of the Soviet Union as the “greatest geopolitical catastrophe.” He may not have to wait long to witness another, this time of his own making. The seed of his regime’s destruction may be, among other things, for want of a microchip.

Jack Jarmon has been a visiting scholar at the Harriman Institute, Columbia University for the past year. He taught international relations at the University of Pennsylvania and Rutgers University where he was Associate Director and Research Professor at the Command Control and Interoperability Center for Advanced Data Analysis – a Department of Homeland Security Center of Excellence. Dr. Jarmon was Director of Strategic Alliances at Nortel Networks and Manager in Arthur Andersen’s Moscow Office. During the mid 1990s, he served as USAID Technical Advisor for the Russian government. He has lectured at major universities and war colleges and authored and co-authored five books, which are currently core texts for international and security studies programs in the US and abroad.

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