8 March 2016

US acts against Chinese smartphone firm ZTE for violating Iran controls

The US Department of Commerce has added Zhongxing Telecommunications Equipment Corp (ZTE), and its subsidiary ZTE Kangxun Telecommunications Ltd, to a list of entities "acting contrary to the national security or foreign policy interests of the United States" under Export Administration Regulations, with immediate effect [https://www.federalregister.gov/articles/2016/03/08/2016-05104/additions-to-the-entity-list].

"Specifically, the ZTE Corporation document 'Report Regarding Comprehensive Reorganization and Standardization of the Company Export Control Related Matters' (available at www.bis.doc.gov) indicates that ZTE Corporation has re-exported controlled items to sanctioned countries contrary to United States law," reports Kevin J. Wolf, Assistant Secretary for Export Administration, in the Federal Register 'Daily Journal of the United States Government'. "The ZTE Corporation document 'Proposal for Import and Export Control Risk Avoidance' (available at www.bis.doc.gov) describes how ZTE Corporation also planned and organized a scheme to establish, control, and use a series of 'detached' (i.e. shell) companies to illicitly re-export controlled items to Iran in violation of US export control laws," he adds.

ZTE replied to the ruling: "ZTE is fully committed to compliance with the laws and regulations in the jurisdictions in which it operates. ZTE has been cooperating, will continue to cooperate and communicate with all US agencies as required. The company is working expeditiously towards resolution of this issue."

The Register [www.theregister.co.uk/2016/03/08/us_trade_ban_on_zte and www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/t1345751.shtml] reports comments from Foreign Ministry spokesperson Hong Lei: "China is opposed to the US citing domestic laws to place sanctions on Chinese enterprises . . . We hope the US stops this erroneous action and avoids damaging Sino-US trade cooperation and bilateral relations."

One company affected by the ruling is Oclaro Inc of San Jose, CA, USA (which provides components, modules and subsystems for optical communications), as seen in falls in stock prices. The company has supplied multiple products to ZTE. Oclaro says that it is currently reviewing the impact of the Department of Commerce action on its ability to ship products to ZTE, adding that it "intends to fully comply with the Department's final rule".

The value of ZTE's business was projected to exceed 10% of Oclaro's revenue in fiscal third-quarter 2016. Oclaro now expects its results to be at the low end of the guidance range that it provided on 2 February.

Other ZTE suppliers include Intel, Qualcomm, and Texas Instruments. It is thought that the ZTE announcement has also affected the stock positions of Lumentum, NeoPhotonics, Fabrinet, Finisar, and telecom analog/mixed-signal chipmaker Inphi.

The ruling will also affect companies that include a significant proportion of US-made components in their products. Export licenses will be needed to supply ZTE, which in general are expected to be denied. ZTE will continue to be able to sell smartphone handsets in the USA.

ZTE has annual sales of more than $15bn and has a 7% share in the US smartphone market.

Tags: ZTE

Visit: www.zte.com.cn

The author Mike Cooke is a freelance technology journalist who has worked in the semiconductor and advanced technology sectors since 1997.