UPDATED 23:12 EST / MAY 09 2018

POLICY

ZTE ceases operations after crippling US ban brings company to its knees

Chinese electronics giant ZTE Corp. announced Wednesday that it has ceased major operating activities following a seven-year ban that forbids U.S. companies from supplying ZTE with components.

“As a result of the Denial Order, the major operating activities of the company have ceased,” ZTE said in a filing to the Hong Kong stock exchange on Wednesday. “As of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject in compliance with laws and regulations,” it said.

The company added that it’s communicating with the U.S. government to have the denial order reversed or modified.

The ban was issued by the U.S. Commerce Department in April, after the U.S. government said ZTE network equipment could pose a risk to national security. The company was accused of not adhering to an agreement with the U.S. related to giving bonuses to employees who had been involved in illegally shipping goods to Iran and North Korea. ZTE paid the $1.19 billion million in fines for that activity, but later seemingly failed to meet all the U.S.’s demands.

The ban came as huge blow to the company, seeing that 25 to 30 percent of its components came from companies in the U.S. According to analysts, even if ZTE can manage to fill the gap, it will still find it difficult to remain competitive.

“The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of US companies,” ZTE said in a statement following the ban.

In attempt to find the now missing components that were supplied by American companies such as Qualcomm Inc. and Intel Corp., ZTE is turning to Taiwan-based chipmaker Mediatek Inc. According to a report in Reuters, MediaTek had obtained an export permit to sell parts to ZTE.

“We fully understand high-tech factories’ characteristic of fast-paced shipments of goods, we won’t create obstacles for the pace of their exports,” a trade official told Reuters on Monday.

Reports emerged this week that the Chinese government has stepped in on ZTE’s behalf and is currently in talks with the U.S. government. To most onlookers, it looks like the U.S. is starting a trade war with China, although President Donald Trump has denied this.

Given that the Department of Justice has just started an investigation into Chinese smartphone maker Huawei Technologies Co. Ltd. citing national security issues, one might be forgiven for thinking a trade war is in fact taking place.

Image: John Karakatsanis via Flickr

A message from John Furrier, co-founder of SiliconANGLE:

Your vote of support is important to us and it helps us keep the content FREE.

One click below supports our mission to provide free, deep, and relevant content.  

Join our community on YouTube

Join the community that includes more than 15,000 #CubeAlumni experts, including Amazon.com CEO Andy Jassy, Dell Technologies founder and CEO Michael Dell, Intel CEO Pat Gelsinger, and many more luminaries and experts.

“TheCUBE is an important partner to the industry. You guys really are a part of our events and we really appreciate you coming and I know people appreciate the content you create as well” – Andy Jassy

THANK YOU