ZTE chairman appeals for calm amid US parts ban ‘crisis’
ZTE has been plunged into what its chairman calls a state of crisis after the US banned American firms from selling parts to the Chinese telecommunications company for seven years
ZTE chairman Yin Yimin issued a call for calm to employees after the US government banned American firms from selling parts to the Chinese telecommunications equipment giant for seven years, a move that could wreck its plans to build everything from smartphones to gear for enabling 5G networks.
“The company takes the US ban seriously and has immediately set up a crisis team, with every division analysing and coming up with measures to deal with the crisis,” Yin said in an internal memo to employees seen by the South China Morning Post. “We need the combined strength of ZTE’s 80,000-strong staff in this tough time. I would like to appeal to all employees to maintain a state of calm, to man one’s post and do one’s job well. The company is actively communicating and giving its all to resolve this crisis.”
The US government banned sales by American companies to China’s ZTE Corp to punish the Chinese telco equipment maker for paying full bonuses to employees who engaged in the illegal sales of equipment to Iran, for failing to issue letters of reprimand to those employees, and then lying about it to US authorities.
The move, which also dragged down shares of some of its suppliers, reactivates a block on ZTE’s exports and all sales to the company by US suppliers for seven years. To add to the woes, the Britain’s National Cyber Security Centre (NCSC) has written to UK telecoms providers warning them that the use of ZTE's equipment and services could pose a national security risk, the BBC reported.
ZTE will probably miss shipments and lose orders on handsets and transmission equipment as a US export ban leads to a lack of components for China’s largest-listed telecommunications equipment manufacturer, analysts said.
An export ban means US component makers will be prohibited from selling to ZTE, which regularly buys handset chipsets from Qualcomm, and optical components from such companies as Maynard, Acacia, Oclaro and Lumentum, Jefferies equities analyst Edison Lee wrote in a report titled “All hell breaks loose”.
Intel, Microsoft, Qualcomm and Micron Technology are also among US suppliers to ZTE, according to data compiled by Bloomberg. Jefferies cut its recommendation on ZTE’s stock to underperform and slashed its share price target by more than half to reflect its expectation that profit this year will slump by 51 per cent.
“ZTE is aware of the denial order activated by the United States Department of Commerce. At present, the company is assessing the full range of potential implications that this event has on the company and is communicating with relevant parties proactively in order to respond accordingly,” ZTE said in a statement on Tuesday morning. ZTE declined to verify the contents of Yin’s memo.
ZTE halted its trading both in Hong Kong and Shenzhen on Tuesday pending the release of information. Its shares were last traded at HK$25.6 at the close in Hong Kong on Monday.
China’s Ministry of Commerce said it would take the necessary measures to protect the interests of Chinese businesses. It said the Shenzhen-based company has cooperated with hundreds of US companies and contributed to the country’s job creation.
The US action takes aim at a profitable network equipment business for ZTE, which sells key telecommunications hardware and software to mobile services providers around the world. The company has been banking on sales of next-generation 5G network equipment to become its new engine for growth, as 4G mobile operators start to upgrade their networks and 5G-enabled smartphones and tablets are expected to soon hit the market.
ZTE had planned to introduce a 5G smartphone in about a year, with possibilities for a 5G tablet or wireless-internet hub, Cheng Lixin, ZTE’s US chief, said at the CES trade show in Las Vegas in January. ZTE already sells both its branded and white-label smartphones via mobile carriers AT&T and Verizon in the US. Smartphone brands do not need carrier deals to sell devices in the US, but such partnerships provide a significant boost in marketing and retail presence.
The company swung back into a profit last year after a loss in 2016 due to a payment of a record fine, which the company agreed to pay the US government to settle a five-year probe of trade sanctions violations.
Yin, a ZTE company veteran, was appointed chairman after the company’s settlement with the US last year. He previously served as president at ZTE for two three-year terms, from 2004 to 2010. He was the president when the company was listed in Hong Kong in December 2004.
“No road that leads to a bright future is straight. The company’s internationalisation will also have its ups and downs”, Yin said in the memo. “On the road forward, we must be steadfast in belief, have even more faith in the company and believe that we will be stronger after weathering the storm”.