ZTE could see ban lifted soon, but it’s still on thin ice

The U.S. technology ban on ZTE may soon be lifted. According to Reuters, the Chinese tech company signed an agreement that would allow it to resuscitate itself months after business effectively ground to a halt. In April, the U.S. Commerce Department imposed a ban when it was revealed that ZTE had been illegally sending goods to both Iran and North Korea.

But now, it seems that things are looking up. The preliminary deal reportedly includes a $1 billion fine, as well as a $400 million in escrow to guard against future violations, per Reuters’ sources. Moreover, ZTE will be required to allow “unfettered site visits to verify that U.S. components are being used as claimed by the company, post calculations of the U.S. components in its products on a public website, and replace its board and executive team in 30 days,” reports note. This confirms previous rumors that the U.S. was planning to substitute a $1 billion-plus fine and an agreement by ZTE to a managerial shakeup in place of a broader punishment.

This would all be small change considering we previously reported that the ban could have resulted in a $3 billion loss for the Chinese company. Partners and clients were allegedly backing out of deals, contributing to burgeoning costs and expenses that mounted quickly.

While the ban may soon be lifted, ZTE is still on thin ice with the United States government. Reuters reports that White House trade adviser Peter Navarro warned that the company would be completely shut down within the U.S. if it engaged in more bad action.

Meanwhile, ZTE is losing a significant amount of money simply on daily operating expenses, which stand at around $15.7 million. And given that most of ZTE’s 75,000 employees aren’t able to do much of anything right now as a result of the ban, this is $15.7 million practically wasted on a daily basis.

ZTE could also be banned from using Google’s Android operating system as a result of an announcement made on April 16 that banned it from using U.S. technology for the next seven years.

The company has articulated its opposition to the ban, complaining that the sentence does not take into account the efforts that ZTE has made to correct the conduct the ban targeted. “It is unacceptable that [the Bureau of Industry and Security] insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts, ignoring the continuous diligent work of ZTE and the progress we have made on export compliance,” the company said.

“The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damage to all partners of ZTE including a large number of U.S. companies,” ZTE continued, indicating that the future of the company is at stake.

How it started

The ban came following allegations that the Chinese company knowingly made false statements to U.S. officials regarding its sale of American technology to Iran. By the time ZTE settled with the U.S. government, it had emerged that the company had lied to officials about the disciplinary actions taken against staff, and apparently had rewarded some employees for illegal actions. As a result, it is now illegal to sell or supply U.S.-based technology to ZTE — and critically for the Chinese company, that could include the Android operating system.

This is an especially large issue for ZTE. Android powers a staggeringly huge portion of the mobile market, with some sources putting the Google OS’s market share at almost three-quarters of the market, with most of the rest being dominated by Apple’s iOS. If ZTE were to lose access to the Android operating system, it would give the firm very few options in operating systems, with mobile operating systems outside iOS and Android taking up less than 1.5 percent of the market. One option for ZTE might be to reach out to Samsung for the Tizen operating system — but that OS is limited in apps and reach.

By contrast, while the impact on ZTE of this ban would be crippling, the blow to Google would be fairly minimal. While still a manufacturer with respectable sales numbers, ZTE is far from being a major player within the Android ecosphere, and ZTE’s loss would be unlikely to cause issues for Google. Bloomberg reports that ZTE’s lawyers are currently in talks with Google officials regarding the ban and how to proceed. We reached out to Google for comment, but the search engine giant has not responded.

Suspicion toward Chinese tech companies like ZTE and Huawei has intensified as of late, with the U.K. recently announcing that ZTE phones could pose a risk to national security, while both companies have been singled out as risky by U.S. intelligence agencies, and this is likely the reason why many U.S. carriers and sellers have cut ties with Huawei.

Updated on June 10: ZTE’s ban may soon be lifted, but this is the company’s last chance.


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