China's ZTE says USA sanctions have crippled operations

Share

"As a result of the Denial Order, major operating activities have ceased", the company said in a Hong Kong Stock Exchange filing.

Before the USA components ban, ZTE was providing services for 100 million users in India, 300 million users in Indonesia and 29 million users in Italy, the official told Reuters.

Taiwanese semiconductor company Mediatek (2454.TW) said last week it had received a permit from the Taiwanese government to continue to supply ZTE.

This order prohibits USA companies, including ZTE's major suppliers such as Qualcomm and Google (for Android), from exporting their products to ZTE for a period of seven years.

As one of the world's largest telecom equipment makers alongside Huawei [HWT.UL], Ericsson (ERICb.ST) and Nokia (NOKIA.HE), ZTE relies on USA companies such as Qualcomm (QCOM.O) and Intel (INTC.O) for up to a third of its components.

Others, meanwhile, indicated they continued to evaluate the impact of the ban and subsequent shutdown, including AT&T, the top distributor of ZTE phones in the USA, and South African telecom giant MTN.

The Wall Street Journal reported Thursday that Telstra, Australia's top carrier, would stop carrying its own-brand phones made by ZTE due to supply concerns.

ZTE was hit by a ban last month from Washington, forbidding USA firms from supplying it with components and technology after it was found to have violated US export restrictions by illegally shipping goods to Iran.

But in light of the ongoing trade war between the USA and China, the Trump administration may not back down so easily, which would threaten ZTE's ongoing existence.

ZTE's failure to comply with the 2017 Commerce Department settlement included not reprimanding or cutting bonuses to 35 employees tied to the wrongdoing, and making false statements, the Commerce Department previously found.

Qualcomm last month said it expected lost sales to ZTE to lower its earnings by 3 cents per share in the current quarter.

A May 1 formal request by ZTE to the U.S. Commerce Department for an immediate stay of the April 15 ban went unheeded.

The announcement by the fourth-largest wireless equipment maker in the country comes amid an escalating trade battle between the USA and China. The firm pleaded guilty to the charges in March past year and was hit with $1.2 billion in fines.

"The extent of the impact of the Commerce Department ban on U.S. suppliers was noted by the ZTE official, who was not authorized to speak publicly, as Chinese and United States government officials discuss a Washington visit next week by China's top economic [envoy Liu He for the second round of trade talks]".

Share