US ban forces China’s ZTE to suspend all major activities
10 May 2018
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China’s ZTE Corp has suspended all major activities after the US crippled its ability to buy crucial American technology.
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ZTE said its major operations had "ceased" following last month's US ban on sales of critical technology to the company, signalling the possible collapse of the world’s largest makers of phones and networking gear.The products of China’s No 2 telecom equipment maker depended on American chips and other components and it is unable to continue operating without key supplies.
ZTE said it remains intent on resolving a seven-year blockade Washington imposed as punishment for violating the terms of a 2017 sanctions settlement and then allegedly lying about it. The blockade cut off access to the components it needs to build most of its products, from Qualcomm Inc’s semiconductors to optical chips from Lumentum Holdings Inc.
ZTE, which makes telecoms equipment and handsets, is still "actively communicating" with the US side "to facilitate the modification or reversal" of the ban and "forge a positive outcome", a regulatory filing said.
US officials imposed the seven-year ban last month after ZTE allegedly made false statements regarding its settlement of a case involving the illegal sale of goods to Iran and North Korea. The firm pleaded guilty to the charges in March last year and was hit with $1.2 billion in fines.
The tough sanctions come as the battle over technology takes centre stage in a US spat with China focusing on trade and industrial policy, according to AFP.
At the time the measure was introduced, one Chinese investment bank estimated the firm had only one or two months' supply of hardware and software components on hand.
In Wednesday's statement, the firm said it still "maintains sufficient cash and strictly adheres to its commercial obligations".
Trading of its Hong Kong and Shenzhen-listed shares has been halted since the US decision.
Beijing has been closely following the developments around ZTE, a company with 80,000 employees, with is headquarters in southern China.
The company said on Sunday it had submitted a request to the US commerce department for a stay of the export ban, along with supplemental information.
And Chinese officials protested against the ban in discussions with a high-level US delegation last week and said the US side would discuss the matter with President Donald Trump.
ZTE essentially ran out of inventory in the month since the ban’s imposition and then had no way to replenish it, Bloomberg reported. As of Thursday, its website and flagship smartphone store on Alibaba’s Tmall online marketplace had suspended sales. Telecom carriers, including Australia’s Telstra Corp, stopped offering its devices. And ZTE’s larger telecom gear-making operation probably ran afoul of the same component shortages.
“There is nothing ZTE can do now,” an analyst said. “Its manufacturing and sales are paralyzed, but R&D is still going on.”
The blow came just as ZTE was preparing to lead the country’s charge into the era of fifth-generation wireless technology, along with local rival Huawei Technologies Co. Major wireless carriers around the world are preparing to spend billions rolling out 5G networks, which enable new technologies from faster internet access to augmented reality.
ZTE, which once harboured ambitions of vying with Apple Inc in phones, has called the punishment “unacceptable” and threatened to take legal action.
ZTE’s larger rival, Huawei, also faces heightened US opposition. The US justice department is said to be investigating its own compliance with American sanctions banning sales to Iran.
The Pentagon has banned ZTE and Huawei phones for sale, and the Federal Communications Commission voted in April to ban federal funds from being used to buy gear from companies deemed a national security risk (See: US bars sale of Huawei, ZTE devices on military bases globally)
