China's ZTE sees heavy losses in H1 due to U.S. penalty

Gladys Abbott
July 16, 2018

As the U.S. Senate prepares to vote on what will likely be the final version of the 2019 National Defense Authorization Act (NDAA), some senators are making a final push for the original ban and penalties targeting Chinese telecom company ZTE to be reintroduced via an addition to the legislation.

While we lifted the ban on ZTE, the Department will remain vigilant as we closely monitor ZTE's actions to ensure compliance with all USA laws and regulations. Because ZTE relies on USA suppliers to make its smartphones.

A group of Republican and Democratic U.S. senators on Thursday sent a letter seeking to reinstate penalties on ZTE Corp. Three interlocking elements - a suspended denial order, the $400 million in escrow, and a compliance team selected by and answerable to the Department - will allow the Department to protect USA national security.

Shares of smaller U.S. suppliers, which are more dependent on ZTE, pared losses after the news, including optical component makers Acacia Communications Inc, Oclaro Inc and Lumentum Holdings Inc. The new agreement once again imposes a denial order that is suspended, this time for 10 years, which BIS can activate in the event of additional violations during the ten-year probationary period.

ZTE has replaced its board of directors and senior management, as required by the June settlement, the Commerce Department noted.

In a statement this week, Senator Mark Warner of Virginia, the senior Democrat on the Select Committee on Intelligence, lambasted the reversal, saying the U.S. military and spy agencies had branded ZTE an "ongoing threat" to USA national security.

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The fate of the ZTE amendment is not clear.

As of Friday, ZTE was no longer on the Commerce Department's "denied persons list", Reuters reported.

ZTE was first hit with the ban in April after it violated the terms of 2017 agreement stipulating that it was not allowed to sell sensitive American technology to Iran and North Korea.

The United States has formally lifted a crippling ban on exports to China's ZTE, rescuing the smartphone maker from the brink of collapse after it was denied key components.

"As ZTE is finally near the end of the tunnel, we believe its current stock price incorporates an overly pessimistic view on the settlement".

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