ibusinesslines.com August 18, 2018

ZTE banned from using US-based hardware or software in its products

16 April 2018, 10:12 | Kelvin Horton

US Bans American Companies From Selling Parts to Chinese Phone Maker ZTE

US companies banned from selling components to ZTE

The U.S. action, first reported by Reuters, could be devastating to ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE's equipment, which includes networking gear and smartphones.

ZTE was accused to circumventing USA sanctions on Iran back in 2016. The official, speaking on the condition of anonymity, said the timing of the ZTE action was unfortunate because it could seem related to US steps to stop alleged theft of intellectual property. The Department of Commerce warned that ZTE could be banned from sourcing from its US suppliers and it avoided that by paying $890 million in fines and penalties. "Many banks and companies even outside the U.S. are not going to want to deal with them", said Eric Hirschhorn, a former U.S. Undersecretary of Commerce who was heavily involved in the case.

Acacia Communications Inc, which earned 30 per cent of its total 2017 revenue from ZTE, tumbled as much as 34.7 per cent in early trade, hitting a almost two-year low.

ZTE didn't respond to calls seeking comment that were made after business hours in China.

As part of the original settlement with the US, ZTE agreed to a seven year suspended denial of privileges sentence. In a letter seen by the FT, Ian Levy, Technical Director of The National Cyber Security Centre in the United Kingdom, has written to United Kingdom telcos, ZTE and Ofcom warning of the dangers of using ZTE products and services.

Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, called the ban highly unusual and said it would severely affect the company.

The department's action against ZTE also prohibits large American companies like Qualcomm and Micron Technology from selling their chips and components to ZTE, China's largest listed telecommunications equipment supplier.

The U.S. action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade.

The denial order against ZTE comes amid brewing tensions between the US and China that have raised concerns of a trade war between the world's two biggest economies. The company may still have a chance at redeeming itself in the United Kingdom, but as far as the US goes, that's a much different story.

The U.S. government had allowed the company continued access to the U.S. market under the 2017 agreement. Secretary of Commerce Wilbur Ross was quoted as saying in an announcement by the department.

Chinese telecoms equipment group ZTE Corp hit back in February against concerns from USA lawmakers that it is a vehicle for Chinese espionage, saying it was a trusted partner of its USA customers.

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