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Putin’s arms dealer also sells smartphones, baby incubators

MOSCOW: If you need a genuine Kalashnikov rifle, Sergey Chemezov is your man. He’d also be happy to sell you a dual-screen smartphone, neonatal incubators, heavy-duty trucks or a few tons of titanium.
As head of Rostec, the Russian state-owned holding company formed around arms exporter Rosoboronexport, Chemezov is branching out. His $9 billion in planned investments through next year will include ventures working on biotechnology, drugs, gadgets and medical devices.
“Our target is to have at least 50 percent of our combined revenue coming from civilian goods by 2015, so we’re not so dependent on military orders,” Chemezov, 61, said in an interview in Moscow.
Finding new markets and customers may be more important than ever for Rostec after leaders in the United States and Europe threatened Russia with sanctions for sending troops into Ukraine’s Crimea region. It would also bolster President Vladimir Putin, an ally of Chemezov who began his third term by ordering the government to create 25 million quality jobs through a modernization of the commodities-driven economy.
Chemezov, who was born in the Siberian region of Irkutsk and got his start as a engineer there, is a trusted ally. He’s known Putin since the 1980s, when they lived in one apartment complex in Dresden, Germany, during the future president’s stint as a KGB officer.
Rostec, previously known as Russian Technologies, will book more than 1 trillion rubles ($27.5 billion) in revenue for last year, up from 931 billion rubles in 2012, according to Chemezov. About 60 percent of that is still defense-related.
The United States, which awarded Rosoboronexport a $572 million helicopter contract last year, said last week that it was putting on hold joint military engagements with Russia. Elon Musk, the billionaire chief executive officer of Tesla Motors, said last week the US shouldn’t award Russia a “huge contract for rocket engines” after the actions in Ukraine.
Rostec has significant industrial cooperation with Ukraine, so the current situation “certainly causes concern,” Chemezov said.
“We hope that the lack of a unified approach among governments on certain issues won’t influence relations among our countries, and that earlier agreements with our international partners will be successfully realized,” he said.
Eventually, Rostec wants to sell stakes in its successful holdings. Chemezov sold control of VSMPO-Avisma, the world’s largest titanium producer, in 2012 while retaining 25 percent. Rostec sold the stake for about $970 million.
Most of the companies aren’t there yet. Rostec was saddled with hundreds of businesses in varying states of financial disarray after its creation in late 2007. The initial 437 had a loss of 61 billion rubles in 2009, when Russia’s economy contracted 7.8 percent.
About 100 were nearly broke when handed to Chemezov and 28 were already in bankruptcy, he told Putin in a meeting in 2012. Twenty-three more weren’t even operating, he said at the time.
Rostec holds stakes in 663 companies and counting. It’s been profitable since at least 2012, allowing Chemezov to shift from rescuing Soviet-era enterprises to investing in modernization.
About 116 billion rubles, or more than a third of Rostec’s three-year, 332.6 billion-ruble investment program, will go toward overhauling truck producer KamAZ and AvtoVAZ, Russia’s biggest automaker, in which Renault-Nissan bought a controlling stake last year.
Rostec may increase its stake in KamAZ, part owned by Daimler AG, from 49.9 percent now, according to Chemezov. A group of investors who used to own Russian investment bank Troika Dialog haven’t been able to agree with Daimler on a price for their 23.5 percent, he said.
Chemezov is also pushing into health care. Rostec owns Schvabe, which makes everything from optical devices to baby incubators, and Rostec now plans to start accumulating stakes in state-owned biotech firms and drugmakers.
Last year, Chemezov ventured into consumer goods with the Yotaphone, which he dubbed a “100 percent Russian invention.” The smartphone, sporting an LCD on one side and electronic-ink reader on the other, won awards at shows in Las Vegas and Cannes, he told Prime Minister Dmitry Medvedev in December.
“Apple got nervous, you’re saying, after our smartphone,” said Medvedev, who uses the Cupertino-based company’s gadgets, while inspecting the device.
“That’s absolutely right,” Chemezov said, after conceding that the components were foreign and the phone was assembled in Singapore. “The main thing is that all the intellectual property belongs to Russia.”

While expanding elsewhere, Chemezov isn’t letting go of the arms trade.
Rosoboronexport’s revenue reached a record $13 billion last year, Kommersant reported in January. The arms exporter is looking to boost sales in Latin America and Africa while maintaining its presence in India, China and southeast Asia, according to Chemezov.