Chinese smartphone maker ZTE barred from U.S. technology

Gladys Abbott
April 17, 2018

Last year, the Chinese firm pled guilty to violating United States sanctions by shipping goods and technology produced in the USA to Iran.

The Commerce Department Denial Order also reversed the suspension of $300 million that was part of a $661 million civil penalty for its activities. In response, the Department of Commerce instituted a full ban on any US exports to ZTE specifically for the next seven years.

The Shenzhen company also dismissed four senior employees and disciplined 35 others.

The US action also comes amidst a brewing trade fight between Washington and Beijing after the Trump administration announced tariffs on $50 billion worth of Chinese goods coming into the US, as well as planned tariffs on an additional $100 billion worth of Chinese goods. While a few reports say, the company might actually sell Android-powered devices outside of the U.S. as it comes with open source software.

According to Reuters, U.S. firms contribute one quarter to one half of the material and components used in ZTE's smartphones and telecommuncations networks.

CICC predicted the Commerce ban will have a significant effect on ZTE's business - and perhaps on the building of wireless networks.

There could be upside for telecom gear maker Ciena (CIEN) from the U.S. Commerce Department's decision to ban domestic firms from selling components to Chinese telecom gear maker ZTE, analysts said Tuesday. And the issue appears to be growing in importance for the USA wireless industry considering a new report indicates China may well take the lead in the race to 5G based on the resources the country appears to be putting toward the network technology.

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As part of its penalty, ZTE agreed to fire four senior employees and to discipline 35 others.

"We believe such a response could be similar across the entire USA component supply chain". Qualcomm is a US-based company, meaning ZTE phones will not be able to use Snapdragon processors.

The ban may result in more tension between the U.S. and China.

The ban had been put in place in response to ZTE's violation of trade sanctions on Iran and North Korea, the United States said.

Britain's cyber-security watchdog has warned telecommunications companies against dealing with the Chinese manufacturer ZTE, citing "potential risks" to national security.

In February, the Federal Bureau of Investigation warned against trusting phones manufactured by Huawei and ZTE without publicly providing any real evidence the Chinese companies were doing anything wrong. After political issues effectively killed Huawei's ability to sell phones via US carrier AT&T, and President Donald Trump blocked the Broadcom-Qualcomm deal, this is another case of the USA using its powers over trade to effectively prevent China from having too much influence within the American economy.

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