China's ZTE Banned From Using US Parts

Optical Stocks Under Pressure After US Bans Sales To ZTE

The US government has banned American companies from selling components to China's ZTE despite reaching a $1.2 billion settlement with the telecom giant in 2017 over trade with Iran.

The Commerce Department determined ZTE, which was previously fined for shipping telecommunication equipment to Iran and North Korea, subsequently paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to US authorities, the department said. As part of the agreement, ZTE said it would dismiss four members of senior staff to discipline 35 more.

For ZTE itself, the latest US action means one of the world's top makers of smartphones and communications gear will no longer be able to buy technology from American suppliers, including components central to its products. Instead of reprimanding the employees, the company is stated to have rewarded them with full bonuses.

"ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation", Commerce Secretary Wilbur Ross said in a statement provided to TechCrunch. This could have a devastating impact on the company given that US companies are believed to account for 25 to 30 percent of ZTE's components to build phones and networks.

Trading in ZTE shares was suspended in Hong Kong.

Washington has also deepened its scrutiny of Chinese investment in the US, with the Committee on Foreign Investment in the United States (CFIUS), blocking many proposed acquisitions of USA assets by Chinese companies.

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The company has set up a crisis management group in response to the ban, said a ZTE source, declining to be identified as the information was confidential.

Following a report in the UK's Financial Times newspaper on Monday, the UK's National Cyber Security Centre (NCSC) published a brief statement on its website describing ZTE Corp. In 2012, a U.S. government report named both ZTE and larger Chinese rival Huawei as potential security risks and warned United States operators with government contracts off using the Chinese vendors in their networks.

ZTE agreed in March of a year ago to plead guilty and pay as much as $1.2 billion for violating US laws restricting sale of American technology to Iran.

The company grew to become one of the world's biggest telecoms equipment makers thanks to its cheap and affordable smart phone technology. US President Donald Trump has already imposed tariffs on Chinese imports in recent weeks, and there is growing concern that China is racing ahead of the US in the all-important technology sector.

The action of the ban imposed by the USA on the ZTE corp. means that one of the world's top manufacturers of smart phones and communication gear will not be able to buy technology from American Supplies. 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.

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

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