US export ban on ZTE will hurt Qualcomm, others

US export ban on ZTE will hurt Qualcomm, others

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The United States Department of Commerce has activated an export ban on Chinese telecommunications equipment company ZTE Corp. as a nascent trade war between the US and China heats up.
By Peter Clarke

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ZTE agreed to a seven-year suspend export ban in March 2017, when it agreed a $1.19 billion fine for shipping telecommunications equipment to Iran and North Korea.

The Bureau of Industry and Security (BIS) within the Department of Commerce has now activated the ban because, it says, it has found out that ZTE made false declarations to BIS both during the settlement negotiations and subsequently.

As well as banning exports it becomes illegal for other businesses and individuals to participate in exports by that company. ZTE is a manufacturer of mobile phones and Qualcomm is a supplier of Snapdragon processors into ZTE. A number of other chip suppliers will be affected by the ban.

ZTE has been dropping down the rankings of smartphone makers in recent quarters and is close to dropping out of the top ten but it still had 10 percent of the US market in 4Q17, according to analysis firm Counterpoint Research. According to IHS-Markit, ZTE shipped 46.4 million smartphones in 2017, about 3 percent of the market and down 20 percent on the previous year.

It is not clear what percentage of ZTE smartphones are based on Qualcomm Snapdragon processors but if it is half and the chips can command a price of $25 it would represent a potential loss of $500 million in sales.

Qualcomm and other US businesses have also been affected by the Chinese Ministry of Finance and Commerce (MOFCOM) slowing down its reviews of international deals which could prevent Qualcomm’s acquisition of NXP Semiconductors and Bain Capital’s acquisition of Toshiba’s chip business.

ZTE could be forced to turn to other chipset makers such as MediaTek of Taiwan and China’s Spreadtrum.

Related links and articles:

www.commerce.gov

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