UK, US Governments Warn Against Buying ZTE Hardware

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The US government has banned sales by American companies to China's ZTE Corp to punish the Chinese telecommunications equipment supplier after it allegedly made false statements during an investigation into sales of its equipment to Iran and North Korea. Now, it seems that ZTE will have to resort to companies like MediaTek for SoCs to use in its handsets.

It also said that "ZTE's false statements only were reported to the US Government after BIS requested information and documentation showing that employee discipline had occurred".

Unlike Huawei, ZTE is a state-owned company, which seems to raise more questions even for the United Kingdom government, which hasn't banned Huawei hardware yet.

The false statements allegedly occurred while the USA was investigating ZTE exports to Iran and North Korea, a bit of business which landed the firm in hot water to start with, collecting a $1.2 billion fine in the process, but buying U.S. components, incorporating them into ZTE equipment and shipping them to the countries was not something which was accounted for in the original punishment. Acacia Communications Inc, which got 30 percent of its total 2017 revenue from ZTE, tumbled 35 percent, hitting a near two-year low.

Oclaro Inc (NASDAQ: OCLR) saw its stock fall by more than 15 percent as ZTE accounted for 18 percent of its 2017 revenue.

ZTE didn't respond to calls seeking comment that were made after business hours in China.

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The National Cyber Security Centre (NCSC) has warned United Kingdom telecoms providers that use of Chinese based ZTE equipment enhances the risk of a United Kingdom "national security" threat.

Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, called the ban highly unusual and said it would severely affect the company. "It's certainly going to make it very hard for them to produce and will have a potentially significant short and long-term negative impact on the company".

As part of the original settlement with the US, ZTE agreed to a seven year suspended denial of privileges sentence.

The U.S. action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade. The company can resume purchasing these components from the US after seven years. Secretary of Commerce Wilbur Ross was quoted as saying in an announcement by the department. Although Commerce Department officials would not discuss the report, they said the department followed up in February.

Visitors pass in front of the Chinese telecoms equipment group ZTE Corp booth at the Mobile World Congress in Barcelona, Spain, February 26, 2018.

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