ZTE suspends smartphone sales, after-sale services to comply with US ban

ZTE was slapped with a seven-year ban prohibiting any of its agents to have any business transactions with the US

PUBLISHED : Thursday, 10 May, 2018, 8:03am
UPDATED : Thursday, 10 May, 2018, 2:09pm

ZTE Corp, China’s biggest publicly traded telecommunications equipment provider, has halted sales of its consumer products and related services after the US government last month banned the sale of American technology to the company.

The closure appears to be part of the cessation of “major operating activities” described by the Shenzhen-based company in a filing to the Hong Kong stock exchange on Wednesday. ZTE was slapped with a seven-year ban prohibiting it from any transactions with the US for breaching the terms of a settlement related to its business dealings with Iran.

The US ban on sales of technology to ZTE comes at a time of escalating trade tensions between the US and China. Liu He, director of the Office of the Central Leading Group for Financial and Economic Affairs and President Xi Jinping’s most trusted economic adviser, will meet US officials in Washington again next week to continue talks aimed at averting a US-China trade war. 

Earlier this month, ZTE said it had filed a formal submission with the Commerce Department, requesting a stay of the sales ban. According to a report in Thursday’s Wall Street Journal, a spokesman for the Commerce Department’s Bureau of Industry and Security, which oversees export controls, said the agency was reviewing ZTE’s appeal and would give it “prompt consideration.”

No products were listed on ZTE’s official online store on e-commerce platform Tmall and the website said it was “undergoing revision”. The site featured a photo of bare-chested men wearing red bandanas rowing dragon boats above a blue caption that said “Spring is used for struggle!”. 

ZTE ceases ‘major operations’ because of US ban on tech sales

The company’s device webpage that provides smartphone information and detailed addresses of ZTE’s after-sales service locations now automatically diverts users to the company’s main Chinese-language webpage, which says “the website is under revision, please stay tuned.”

In its statement to the stock exchange Wednesday, ZTE said that it maintains sufficient cash as of now and “strictly adheres to its commercial obligations subject to compliance with laws and regulations”. 

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The company had immediately halted almost all of its operations both overseas and at home after the denial order came into effect on April 15, because the ban could be interpreted as touching wide-ranging aspects of the company’s operations, said people familiar with the situation. 

Beyond the company’s executives and employees, the denial order also categorised any “representatives” or “agents” as falling under the ban that prohibited participation “in any way in any transaction involving any commodity, software or technology exported or to be exported” from the US. The ban may also be applied to any person or entity related to the “denied person” in the conduct of trade or related services. 

Shenzhen-based ZTE declined to comment on the suspension of its sales channels and after-sale services as well as the revision and redirection of its websites. 

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In the stock filing on Wednesday night, ZTE said the company and “related parties are actively communicating with the relevant US government departments in order to facilitate the modification or reversal of the Denial Order by the US government and forge a positive outcome in the development of the matters”, without specifying who the related parties are.

The company said it will make announcements of “material developments” in relation to the denial order “as soon as practicable” and advised investors to pay attention to further statements.

China’s Ministry of Commerce said in a statement last Friday that Chinese officials had made “solemn representations” over the ZTE case to the US delegation.

“Given that China is already treating this issue as part of its trade talks with the US and the Department of Commerce is willing to review additional information from ZTE, the company could potentially enter into a settlement soon, or have the ban lifted tentatively subject to further investigation,” Jefferies equity analyst Edison Lee said. 

ZTE said in an internal memo to employees last week that after learning of the US order on April 16, as a global company growing up in China, it has been acting in line with the government of China, and is taking steps under its guidance to facilitate the resolution of the issue, the South China Morning Post reported on Saturday.

The company derived 59 per cent of its revenue last year from its carrier network business, which includes switching and access systems, optical and data communications and wireless communication systems.

Another 32 per cent of its revenue comes from its consumer business and 9 per cent from government and corporate business, according to data compiled by Bloomberg.