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ZTE in trouble

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Whilst global sales of smartphones fell by 5.8 percent in Q4, 2017 compared to the same period in 2016, surprisingly, Chinese smartphone manufacturers registered impressive gains.

Xiaomi bagged in 78 percent growth while Huawei achieved 7.56 percen . Overall, smartphone sales globally grew by a meagre two percent in 2017.

Though ZTE, Huawei and even Xiaomi are Chinese companies, they have footprint in the US telecommunication market albeit being smaller players. Huawei and ZTE are, however, big players in China. In 2017, ZTE and Huawei revenues were 108.8 billion CNY and 604 billion CNY respectively.

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These companies are also ubiquitous in many parts of the world including Malawi. For some unexplained reason, the US government has been discouraging its citizens and companies from using ZTE and Huawei products for very fuzzy reasons. Now, it clear why the US government has been acting that funny.

It has been revealed that ZTE has been violating US trade embargo against Iran. ZTE has, for more than a year, been obtaining contracts to supply, build, operate and maintain telecommunications networks in Iran using US-origin equipment through it US wing.

This entails that ZTE would get orders from Iran, order from US suppliers within US and assemble the IT and telecommunication for Iranian companies in its facilities in the US. It would then discretely ship the goods to Iran.

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ZTE went further to delete, destroy or even sanitise all the information of such transactions. This is a clear violation of the Export Administration Regulations of USA.

ZTE was also found guilty of illegally shipping equipment to North Korea, another no go zone for US products and equipment.

While ZTE has been severely punished with an imposition of $1.19 billion high-record civil and criminal penalty, there are impacts on the US technology industry.

Number one is that it is not only ZTE that is going to feel the pinch, other US technologies companies are going to suffer as a consequence. The companies that supplied the building blocks for the ZTE imports to Iran and North Korea have been imposed with a blanket ban from selling its hardware to ZTE. This will resultantly cripple the revenues for these companies.

US companies account for 25-30 percent of the components ZTE uses in smartphones alone. Among them, Qualcomm, the mobile phone chip and modem maker is chief. Others include Acacia Communications, Lumethan Holdings, Finisair Corp and Oclaro Inc.

Stocks of some of these companies reacted on the news with downward trends.

While ZTE may not be allowed to export from USA for 7 years, the ban can be lifted with ZTE committing to observe export regulations to the letter within the year.

Perhaps that explains why the US government did not seem keen on proliferation ZTE and Huawei US-manufactured products.

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