Visitors pass in front of the ZTE stand at the Mobile World Congress. Photo: AFP
Visitors pass in front of the ZTE stand at the Mobile World Congress. Photo: AFP

The true cost of United States sanctions against ZTE is starting to emerge. In a stark announcement earlier this week, the Chinese telecom giant confirmed it was shutting down “major operating activities.”

The news came less than a month after the US Commerce Department banned ZTE from buying US-made components, such as semiconductors, for seven years, effectively wrecking its supply chain.

Problems started to pile up for ZTE as soon as the US ruling highlighted how the company had violated a sanctions settlement involving illegal exports to Iran.

Earlier, ZTE had pleaded guilty to the original charges and agreed to pay US$892 million in fines.

“As a result of the Denial Order, major operating activities have ceased,” the company said in a Hong Kong Stock Exchange filing. “As of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject in compliance with laws and regulations.”

But a report from Reuters has since revealed the financial fallout of the decision, stating:

“The company paid over US$2.3 billion to 211 US exporters in 2017, a senior ZTE official said. ZTE paid over $100 million each to Qualcomm, Broadcom, Intel and Texas Instruments. As one of the world’s largest telecom equipment makers, ZTE relied on US companies such as Qualcomm and Intel for components.

“The extent of the impact of the Commerce Department ban on US suppliers was noted by the ZTE official, who was not authorized to speak publicly, as Chinese and US government officials discuss a Washington visit next week by China’s top economic [envoy Liu He for the second round of trade talks].”

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Companies in the US are estimated to provide up to 30% of the components used in ZTE’s products, which includes smartphones and complex equipment for telecommunications networks.

As a result of the ban, the Shenzhen-based group will be unable to access Qualcomm processors and Android devices with Google Mobile Services software.

It will also disrupt ZTE’s overseas operations. This, in turn, will affect the company’s ability to provide services, such as repairs to infrastructure for clients in other countries and regions.

Before the US components ban, ZTE was providing services for 100 million users in India, 300 million users in Indonesia and 29 million users in Italy, the official told Reuters.

On Friday, Asia Times reported that the group might sell-off its successful smartphone business, according to the online site AAStocks Financial News with potential buyers including domestic rivals Huawei, Oppo and Xiaomi.

“If ZTE is truly considering selling its mobile handset business, then the potential end for the company is near,”  Earl Lum, the President of EJL Wireless Research, a consultancy and research firm based in the US, said.

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– additional reporting from Reuters