ZTE estimates at least US$3 billion in losses from US ban

PUBLISHED : Wednesday, 23 May, 2018, 10:52am
UPDATED : Wednesday, 23 May, 2018, 12:27pm

ZTE Corp. is estimating losses of at least 20 billion yuan (US$3.1 billion) from a US technology ban that’s halted major operations as clients pull out of deals and expenses mount, people familiar with the matter said.

The telecoms gear and smartphone maker however is hopeful of striking a deal soon and already has a plan in place - dubbed “T0” - to swing idled factories into action within hours once Washington agrees to lift its seven-year moratorium on purchases of American chips and components, said the people, who asked not to be identified talking about private negotiations.

The company declined to comment.

Trump ‘reconsiders ZTE penalties as favour’ to Xi

Shenzhen, China-based ZTE depends on US components, such as chips from Qualcomm Inc., to build its smartphones and networking gear.

The ban, for breaching terms of a settlement over sanction-breaking sales to Iran, has all but mothballed China’s second-largest telecoms gear maker and become entangled in a trade dispute between the world’s two largest economies.

On Tuesday, President Donald Trump said he’s reconsidering US penalties as a favour to Chinese President Xi Jinping and may instead fine the company more than US$1 billion.

ZTE mess shows need to change the ‘Chinese way of doing business’

ZTE is shelling out an estimated 80 million to 100 million yuan in daily operational expenses alone while most of its 75,000 employees sit idle, the sources said.

But it is hopeful of ramping up swiftly once a settlement is reached: thousands of workers biding their time in the company’s dormitories stand ready to flood its factories once a green light is given, the people said.

It’s unclear what ZTE can do to prompt a reprieve, though it’s expected to reshuffle executives and possibly its board. Chinese government officials however are undertaking negotiations on behalf of ZTE and the company, which doesn’t have much influence in the process, will have to accept the terms of any settlement reached between Beijing and Washington.

ZTE first ran into trouble in 2016 for violating laws restricting the sale of American technology to Iran. An agreement in 2017 called for the company to pay as much as US$1.2 billion and penalise the workers involved, in what was the largest criminal fine for the Justice Department in an export control or sanctions case.

ZTE suspends smartphone sales to comply with US ban

But in April, the Commerce Department said ZTE instead paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to US authorities.

That triggered the seven-year suspension, and its shares have been suspended from trade in Shenzhen and Hong Kong since.

Tensions could easily escalate. There have been concerns the US would impose a ZTE-like ban on China’s largest mobile and telecommunications company, Huawei Technologies Co.

Bloomberg News reported last month that the US is conducting a broad investigation into whether Huawei violated sanctions against trading with Iran, similar to the allegations against ZTE.

China and US agree ‘broad outline’ of settlement over ZTE ban, WSJ says

The moratorium on ZTE threatens a swathe of components needed to hawk gear to clients like China Mobile Ltd. and Europe’s Telefonica SA.

The Chinese firm relies on suppliers from chipmakers Qualcomm and Micron Technology Inc. to optical developers and Acacia Communications Inc.

The ban may also stop the company from using Google’s Android operating system, the heart of its smartphones.