ZTE faces more pressure in US due to ban on cos. selling components

ZTE, a telecom equipment maker from China, is facing immense pressure from the U.S. authorities that will pose challenges to its future revenue growth.
The U.S. Department of Commerce has blocked American technology companies the sale of telecom and smartphone components to ZTE for seven years for violating the terms of a sanctions violation case, Reuters reported.

There will be impact on US-based telecom equipment component suppliers as well. Shares of U.S. optical components makers fell on Monday. Shares of Maynard, Massachusetts-based Acacia Communications, which got 30 percent of its total revenue in 2017 from ZTE, fell 34.7 percent in early trade, hitting a near two-year low.

Shares of other optical companies including Lumentum Holdings fell 6.8 percent and Finisar Corp 3.7 percent. Oclaro which got 18 percent of its fiscal 2017 revenue from ZTE sales, fell 14 percent.

It’s not known whether Intel and Qualcomm, suppliers of chipsets to smartphones and other devices, will be impacted by the decision.

ZTE last month said its revenue rose 7.5 percent to RMB 108.82 billion in 2017 – fuelled by investments in telecommunications networks by global operators and the company’s growth in consumer businesses and government-enterprise markets.

ZTE generated RMB 63.78 billion from its Carrier Networks, RMB 35.21 billion from Consumer Business and RMB 9.83 billion from Government – Enterprise Business.

ZTE reported operating revenue of RMB 61.96 billion from China, its home market, and the balance RMB 46.86 billion from the overseas market.

The latest development assumes significance because China and the U.S. are in a trade war at present. Earlier, Huawei, another China based technology company, faced business issues in the U.S. when AT&T, one of the leading wireless operators, decided against sourcing Huawei smartphones for its wireless customers in North America.

ZTE and violations

ZTE, a top smartphone seller in the United States, pleaded guilty last year in federal court in Texas for conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran. It paid $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.

As part of the agreement, Shenzhen-based ZTE promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them. But ZTE admitted in March that while it had fired the four senior employees, it had not disciplined or reduced bonuses to the 35 others.

ZTE “provided information back to us basically admitting that they had made these false statements,” said a senior department official. “That was in response to the U.S. asking for the information.”

ZTE said it was assessing the implications of a U.S. decision to ban American companies from selling components.

Meanwhile, NCSC, Britain’s main cyber security agency, said on Monday it had written to organizations in the UK’s telecommunications sector warning them about using services or equipment from ZTE.

“NCSC assess that the national security risks arising from the use of ZTE equipment or services within the context of the existing UK telecommunications infrastructure cannot be mitigated,” said Ian Levy, the Technical Director of the National Cyber Security Center.

The Hong Kong-listed shares of ZTE were suspended on Tuesday after the United States and Britain issued warnings over the Chinese telecom equipment maker.

China’s commerce ministry said on Tuesday that it hopes the United States can appropriately deal with the issue involving Chinese telecom equipment maker ZTE in accordance with laws and rules.

The Chinese commerce ministry said it will closely monitor the situation on ZTE and will be prepared to take action to protect the interests of Chinese firms.

NeoPhotonics Corporation, a manufacturer of hybrid photonic integrated optoelectronic modules and subsystems for communications networks, said its direct revenue from ZTE during fiscal year 2017 was approximately 1 percent of total revenue. In addition, the company provides component products to certain ZTE supply chain partners worth 3 percent of total revenue. As of March 31, 2018, the company held products in inventory designated for ZTE that were valued at approximately $1.5 million that will be written off in the first quarter.

MACOM Technology Solutions, a supplier of RF, microwave, millimeterwave and lightwave semiconductor products, said sales to ZTE represented approximately $1.6 million in second fiscal quarter.

Baburajan K