US Move Against Chinese Smartphone Maker Cripples It

A global telecom equipment-maker has halted main business operations
By Janet Cromley,  Newser Staff
Posted May 9, 2018 5:30 PM CDT
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A salesperson in an appliance store sells mobile phones produced by ZTE, in Wuhan, in central China's Hubei province, Oct. 8, 2012.   (Chinatopix Via AP, File)

(Newser) – In a move that is roiling the telecom industry worldwide, a global telecom equipment-maker has halted its main business operations. The announcement comes after ZTE, China’s second-largest telecom equipment company, was found by the US to have illegally shipped its products to Iran, per Reuters. In response, the US Department of Commerce banned US firms from supplying tech and parts to the company until 2025, according to the New York Times. ZTE relies heavily on US companies to supply as much as a third of its components. Those companies include San Diego-based Qualcomm, which supplies processors for more than half of ZTE's smartphones, per Quartz. ZTE, the fourth-largest smartphone vendor in the US, does business with more than 160 countries and employs 75,000 people; the Times calls it the "biggest electronics maker you've never heard of."

Saying it has improved its compliance, ZTE has asked for a stay on the ban and supplied supplemental data bolstering its case to the Commerce Department. But the Commerce Department has asserted that ZTE’s practices were egregious and included a surreptitious system to sell American-made goods in Iran. Then, to hide its activities, ZTE allegedly lied and deleted emails to cover its tracks and actively sought to resume shipments during the investigation. ZTE had settled its sanctions case with the US with a record $900 million fine, but the US reactivated sanctions last month after the company allegedly violated settlement terms. “For other companies thinking about how to follow the rules and manage internal risks, I think this is going to serve as a wakeup call,” a market researcher tells the Times. For now, ZTE's manufacturing is halted, leaving employees to attend every-other-day training sessions and hang out in company dorms.

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