Industry

ZTE to suffer huge losses due to export ban from US

ZTE to suffer huge losses due to export ban from US

Beijing has responded to the US' recent seven-year component ban on telecoms firm ZTE by saying that it is ready to take necessary measures to safeguard legitimate rights.

But instead of punishing those involved, "ZTE paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand", the Commerce Department said in a statement.

The United States Department of Commerce (DOC) has just announced a ban on USA exports to ZTE, which means that the Chinese manufacturer will no longer be able to use technology or components from companies such as Dolby or Qualcomm, including the renowned Snapdragon processors.

ZTE's settlement with the USA followed a multiyear investigation into claims that it violated US sanctions against Iran and North Korea by selling electronics to those countries. (NYSE: T). According to a report from Reuters at the time, security concerns were raised during the negotiations between Huawei and AT&T. As part of the agreement, ZTE said it would dismiss four members of senior staff to discipline 35 more.

The ban is a blow to the face to many US companies that supply ZTE with components, including Qualcomm Corp., Lumentum Holdings Inc. and Finisar Corp., all of whose shares dropped after the announcement.

ZTE agreed in March of past year to plead guilty and pay as much as $1.2 billion for violating USA laws restricting sale of American technology to Iran. -China Tension over trade between the world's two biggest economics. "This egregious behaviour can not be ignored", said Wilbur Ross, the U.S. secretary of commerce. In addition to these monetary penalties, ZTE also agreed a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the Export Administration Regulations (EAR).

A senior department official said that the company "provided information admitting that they had made false statements".

The U.S. Federal Communications Commission on Tuesday plans to consider a ban on networking equipment from companies such as ZTE and Huawei (huawei).

Seemingly in tandem with the US BIS announcement, the UK's National Cyber Security Centre issued an advice statement to the United Kingdom telecommunications sector highlighting the potential national security risk from using ZTE equipment or services can not be mitigated.

Yesterday, the Chinese firm was also blacklisted by the UK's National Cyber Security Centre (NCSC). Its products, including smartphones, use such American parts as microprocessors from Qualcomm, glass made by Corning, and sound technology from Dolby. ZTE may have to either buy from a competitor or get chips from a Taiwanese company whose products generally lag those of its US rival's in performance.