U.S. bans sales to ZTE - future with Android uncertain according to report

Saul Bowman
April 20, 2018

The US has sanctioned Chinese telecoms equipment maker ZTE for violating export regulations and making false statements to the US government, said the US Department of Commerce earlier this week.

According to IHS-Markit, ZTE shipped 46.4 million smartphones in 2017, about 3 percent of the market and down 20 percent on the previous year. Restricted activities include exporting or re-exporting to ZTE Corporation or ZTE Kangxun any hardware, software, or technology subject to the EAR (including US origin items overseas and foreign-made items with more than 25 percent USA content), as well as facilitating acquisition of such items by the ZTE entities, and servicing EAR-controlled items that are owned, possessed or controlled by the ZTE entities. The action followed ZTE's violation of an agreement reached after it was caught illegally shipping US goods to Iran.

ZTE said in a statement that its board had postponed a meeting to approve the results, pending an assessment of the impact of the move by the USA government.

Apparently, ZTE and Alphabet have been in discussions since the ruling on Tuesday, trying to determine whether or not ZTE will be allowed to use Android on its devices following the ban.

ZTE has been dropping down the rankings of smartphone makers in recent quarters and is close to dropping out of the top ten but it still had 10 percent of the United States market in 4Q17, according to analysis firm Counterpoint Research.

"A more important concern for ZTE will be the lack of access to much of the Android ecosystem, from which many key applications are licensed from Google", Plouffe said.


ZTE has not responded to requests to describe how it intends to respond to the ban, which a senior U.S. Commerce official told Reuters is unlikely to be lifted.

Huawei's planned deal with US carrier AT&T Inc (T.N) to sell its smartphones in the United States collapsed in January after USA lawmakers sent a letter to Pai citing concerns about Huawei's plans to launch USA consumer products. A number of other chip suppliers will be affected by the ban.

ZTE, which has chips from USA firm Qualcomm in an estimated 50-65 percent of its phones, is now facing a struggle to save its smartphone business as it looks to find new supplies. "After careful review of the new USA policy, we believe that our relationship with ZTE does not fall within the prohibited activities", Taboola Chief Executive Officer Adam Singolda said in a statement.

At least one US technology company said the ban would not affect its business with ZTE. "We will continue to monitor the situation closely".

The moves threaten to further complicate relations between the United States and China. According to a Reuters report, the ruling may, in fact, end up costing ZTE its Android license.

The analyst also said that a potential deal with the U.S authorities could cost ZTE almost $1 billion and would likely include audits by the U.S government.

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