U.S. Ban Risks Leaving China’s Rising Tech Star ‘Half Dead’

meta itemprop="active" content="true"">>ZTE Corp. may have just gone from being a serious contender in the high-stakes world of next-generation networking to -- quite possibly -- a mobile industry washout.

China’s No. 2 telecommunications gear-maker was preparing to lead the country’s charge into the era of blazing fast fifth-generation wireless technology, along with local rival meta itemprop="active" content="true"">>Huawei Technologies Co. Instead, ZTE meta itemprop="active" content="true"">>ran afoul of Washington for the second time in a year, inciting a moratorium on purchases from U.S. suppliers and dealing a devastating blow to its global ambitions. Its meta itemprop="active" content="true"">>U.S.-traded securities plunged the most since 2008.

It couldn’t have happened at a worse time. ZTE finds itself grappling with life-threatening sanctions just as major wireless carriers prepare to roll out 5G networks worldwide. The U.S. government slapped a seven-year meta itemprop="active" content="true"">>ban on its purchase of components from American companies for ignoring meta itemprop="active" content="true"">>promises made in 2017 to resolve a sanctions dispute -- then lying about it.

The moratorium threatens a swathe of components needed to hawk gear to clients like meta itemprop="active" content="true"">>China Mobile Ltd. and Europe’s meta itemprop="active" content="true"">>Telefonica SA. The Chinese firm relies on suppliers from chipmakers meta itemprop="active" content="true"">>Qualcomm Inc. and meta itemprop="active" content="true"">>Micron Technology Inc. to optical developers meta itemprop="active" content="true"">>Lumentum Holdings Inc. and meta itemprop="active" content="true"">>Acacia Communications Inc. The ban meta itemprop="active" content="true"">>may also stop the company from using Google’s Android operating system, the heart of its smartphones.

“Even if this doesn’t kill them, ZTE will be half-dead,” said Qian Kai, an analyst with brokerage CICC.

ZTE’s best hope may be for intervention from Beijing -- but that is a long shot given meta itemprop="active" content="true"">>rising tensions between the U.S. and China. President Donald Trump has threatened tariffs on $150 billion of Chinese imports for alleged violations of intellectual property rights, while Beijing has vowed to retaliate on everything from American soybeans to planes.

Following the ZTE ban, China’s meta itemprop="active" content="true"">>Ministry of Commerce on Tuesday meta itemprop="active" content="true"">>said it would take necessary measures to protect the interests of its companies. ZTE said it was aware of the sanctions and evaluating their impact. Its shares were meta itemprop="active" content="true"">>suspended from trading in Hong Kong and Shenzhen. ZTE’s American Depository Receipts plunged 33 percent on low volume, their largest drop since December 2008.

meta itemprop="active" content="true"">>Read more: U.S. Cuts ZTE Off From American Tech for 7 Years of ‘Hell’

U.S.-made components account for only 10 to 15 percent of ZTE’s production costs, estimates Nomura analyst Joel Ying. “But these are essential parts that aren’t easily replaced,” he said. ZTE’s smartphones, for instance, rely on Qualcomm’s chips. “At least for the next five to ten years, ZTE can’t exist without American companies.”

Things seemed to be going well for ZTE. A year ago, it mollified a U.S. Commerce Department incensed over illegal exports to Iran by agreeing to pay a fine of up to $1.2 billion and punish wayward staff. ZTE’s market value doubled over the next year, and consumer division chief Cheng Lixin spoke meta itemprop="active" content="true"">>openly about breaking into meta itemprop="active" content="true"">>Apple Inc.’s home turf. And 5G spending looked like a tremendous boon: Chinese carriers alone are expected to spend 3.38 trillion yuan ($538 billion) on networks from 2018 to 2025, Jefferies estimates.

Then the U.S. meta itemprop="type" content="WebLink"">>said it discovered that instead of punishing employees for violating sanctions ZTE had paid them full bonuses -- and issued its ban. meta itemprop="active" content="true"">>U.S. optical suppliers such as meta itemprop="active" content="true"">>Acacia and meta itemprop="active" content="true"">>Lumentum meta itemprop="active" content="true"">>dived, while greater China partners also meta itemprop="active" content="true"">>plummeted.

Analysts delivered a flurry of downgrades on concern ZTE will miss out on future business. The 5G networks are supposed to usher in artificial intelligence, virtual reality and other bleeding-edge applications.

The ban “will likely cause ZTE to lose market share in both transmission and handsets,” Edison Lee, an analyst with Jefferies, wrote Tuesday. “Expect another settlement with the U.S. to take 3 to 5 months. But customer confidence outside China will take longer to restore, especially potential 5G customers.”

meta itemprop="active" content="true"">>ZTE Folly Will Kick China’s Chip Plan Into Overdrive: Gadfly

The ban comes days after President Xi Jinping called on the U.S. to allow Chinese companies to buy more high-tech products from American companies -- whittling away at a ballooning trade surplus. Now, a potential victim could be Qualcomm: Chinese antitrust regulators are meta itemprop="active" content="true"">>reviewing its proposed meta itemprop="active" content="true"">>NXP Semiconductors acquisition, CICC reminded investors.

ZTE could try sussing out alternatives in Japan, Korea or Taiwan for certain non-essential components. But it depends on the U.S. for top-notch processors such as high-speed analog-to-digital converters and communications chips, according to Roger Sheng, an analyst with Gartner.

CICC analysts Huang Leping and Wang Xinglin estimate ZTE harbors about one to two months of inventory, after which the U.S. sanctions will begin to bite. But for now, ZTE’s woes represent a boon for larger rival Huawei, which remains unfettered by similar restrictions.


Together, they rank among the world’s largest providers of networking equipment and are active across Europe and Asia -- less so in the U.S., where the government remains suspicious of their alleged government connections. Both have dismissed such accusations. CICC estimates ZTE commands about a 10 percent share of the global telecoms equipment market, and 30 percent of China. Huawei could now take advantage of the uncertainty surrounding its competitor.

But the troubles for both companies may not be over. On Tuesday, the U.S. Federal Communications Commission meta itemprop="active" content="true"">>voted 5-0 in favor of banning federal funds from being spent with companies determined to be a risk to U.S. national security. The ban won’t be final until a second vote by the FCC, which in a draft order noted congressional scrutiny of Huawei and ZTE as possible security threats.

— With assistance by Yuan Gao, Shelly Banjo, Mark Gurman, and Todd Shields

Source : https://www.bloomberg.com/news/articles/2018-04-17/u-s-ban-risks-leaving-china-s-rising-tech-star-half-dead

U.S. Ban Risks Leaving China’s Rising Tech Star ‘Half Dead’

Source:Daily Mail

U.S. Ban Risks Leaving China’s Rising Tech Star ‘Half Dead’

U.S. Ban Risks Leaving China’s Rising Tech Star ‘Half Dead’


U.S. Ban Risks Leaving China’s Rising Tech Star ‘Half Dead’