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ZTE

ZTE

ZTE’s global smartphone sales likely to slump more than half because of US export ban

Phone sales hammered even though company takes steps to get US ban lifted

PUBLISHED : Monday, 25 June, 2018, 1:21pm
UPDATED : Monday, 25 June, 2018, 7:17pm

ZTE Corp, the Chinese telecoms maker embroiled in an export ban row with the US, estimated that its global smartphone sales this year may not even reach half of what it achieved in 2017.

“Even if the US lifts the export ban immediately, the company has estimated that smartphone sales this year may not even reach 50 per cent of the number achieved in 2017,” said a person familiar with the situation who asked not to be named as the information is private.

ZTE has paid an additional US$1 billion in fines to the US Department of Commerce and is in the process of putting US$400 million into an escrow account, in an effort to meet the conditions of a US settlement deal to lift the ban and get back into business fast. The White House-brokered agreement also requires the company to replace its board and terminate all executives ranked above senior vice-president as well as anyone else involved in the Iran violations.

The Shenzhen-based company closed “major operating activities” in April after the US banned American technology companies from supplying it with components, after ZTE failed to discipline employees involved in a previous violation of US prohibitions against selling equipment to Iran. The ban plunged the company into disarray, with Chairman Yin Yimin saying at the time it was in a “state of shock”.

ZTE’s fate is now at the mercy of a US political tug of war, after both Republican and Democrat senators voted by 85 to 10 to add language to a defence bill that would repeal President Donald Trump’s agreement to end the ban on US exports.

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ZTE 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 came from its consumer business, mostly from smartphone and tablet sales, and the remaining 9 per cent from government and corporate business, according to data compiled by Bloomberg.

ZTE did not immediately reply to a request for comment. The company does not release smartphone sales figures in its annual reports or other official publications.

“We can expect barely any sales from the second and third quarters even if the ban is lifted right away, as it will take months for ZTE to restore its operations and sales,” said Zaker Li, a senior industry analyst with IHS Markit. “What matters most is for ZTE to win back trust from consumers and merchants regardless of the ban being lifted.”

Meanwhile, US lawmakers are also considering legislation that would bar government agencies from using ZTE and Huawei products, which some politicians have described as a potential security threat. The Pentagon this spring stopped the sale of Huawei devices on its military bases.

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ZTE halted all sales of its consumer products and related services from online and offline sales channels immediately after the US government ban was imposed in April. It even suspended after-sale services to stay compliant with the US ban.

Unlike most Chinese smartphone brands which generate most of their sales from the domestic market, ZTE is largely dependent on overseas sales to the US and certain European markets. ZTE is currently the fourth-largest smartphone vendor in the US following Apple, Samsung and LG. In the fourth quarter of last year, ZTE accounted for 10 per cent of North American smartphone shipments, research agency Counterpoint said in a release.

ZTE’s smartphone shipments had already been under pressure before the US ban. Shipments declined 17 per cent to 9.3 million in the first quarter of 2018 from 11.2 million during the same period in 2017, according to an earlier research report from IHS Markit.

In the US, the company has established relationships with carriers such as Metro PCS and Cricket Wireless. These relationships are now under threat and ZTE might not be able to restore them even if the ban is lifted, said the IHS Markit report.