ZTE hit by USA components ban

Daniel Fowler
April 19, 2018

ZTE and Google have been discussing the impact of the ban, a source familiar with those discussions told Reuters on Tuesday.

"This [ban] will be devastating to the company, given their reliance on US products and software", Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, told Reuters.

The U.S. Department of Commerce has banned American companies from selling telecommunications equipment to Chinese vendor ZTE after the firm allegedly did not live up to the terms of an agreement that had been worked out after it illegally shipped telecom equipment to Iran and North Korea. "Many banks and companies even outside the USA are not going to want to deal with them", said Eric Hirschhorn, a former US undersecretary of commerce who was heavily involved in the case.

"China has consistently asked Chinese companies to comply with the laws and policies of host countries and manage their businesses in line with laws and regulations", the spokesperson added.

Republican U.S. senators have also introduced legislation that would block the U.S. government from buying or leasing telecoms equipment from Huawei or ZTE. According to a report by Earl Lum, of EJL Wireless Research, the ban represents a huge impact for ZTE's wireless business.

The U.S. action could be catastrophic for ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE's equipment, which includes smartphones and gear to build telecommunications networks. It is analyzed as the proposal targets Huawei and ZTE in China. In the past, many Chinese manufacturers have just relied on Google's own suite of apps instead of investing their own time and money to build custom versions.

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Officials at two United States wireless carriers said on Wednesday that they were still assessing how the ban would affect their customers.

The report concluded that any USA sanctions would have a "destructive impact" on ZTE, and that without any US suppliers, ZTE would only be able to rely on its own stock of chips. While governments around the world would have done risk assessments on infrastructure providers, the timing of this announcement indicates the potential for this to be an act of solidarity between the United Kingdom and the USA, either in dealing with ZTE or as a stance towards the Chinese government.

The ban would also have ripple effects on the Chinese tech industry in general, according to the report.

Huawei's planned deal with US carrier AT&T to sell its smartphones in the United States collapsed in January after USA lawmakers lobbied against the idea to federal regulators, citing security concerns.

Huawei Founder and CEO Ren Zhengfei gestures while attending a session of the World Economic Forum (WEF) annual meeting in Davos, Switzerland on January 22, 2015.

The company slashed lobbying expenditures to $60,000 in 2017 from $348,500 in 2016, according to Huawei filings.

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