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(Update: Sanctions lifting) US Gov to impose component restrictions on ZTE

ZTE is to face a tough time doing business in the USA, as the government is planning to restrict the company from purchasing components from within the country.

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Published onMarch 21, 2016

Update March 21st: After issuing trade sanctions on Chinese telecoms and smartphone supplier ZTE earlier in the month, the US government is planning to temporarily lift the restrictions to ease tensions between the two countries.

Apparently, the sanctions will be eased following “constructive” discussions between ZTE and the government, but will only last so long as ZTE abides by new commitments made to the US government. The exact details about the agreement have not be disclosed yet, but should be revealed once they are published in the Federal Register later this week.

“As part of the effort to resolve the matter, and based upon binding commitments that ZTE has made to the U.S. government, Commerce expects this week to be able to provide temporary relief from some licensing requirements,” -- senior Commerce official.

For ZTE, the lifting of restrictions will ease pressure on the company’s base station and smartphone businesses, after the company postponed the release of its 2015 earnings and saw its shares suspended from trading on March 7^th. Furthermore, US component suppliers will no doubt be keen to continue their business with ZTE as soon as possible.

ZTE is about to have a much harder time doing business in the USA, as the government is apparently planning to restrict local companies from selling hardware components and software to the Chinese telecoms giant.

The issue is reportedly to do with plans made by ZTE to re-export US technology products from its suppliers to Iran, which the US government prohibits. Allegedly, the US Commerce Department has seen ZTE company documents which revealed that company planned to use shell businesses to resell the supplies.

As a result, the government will be restricting US suppliers from selling any hardware or software components to ZTE. The ruling is expected to go into force on Tuesday. This will likely have major knock on effects for ZTE’s business in the US and around the world. The company is a major global supplier of telecom networking equipment and is the only Chinese smartphone brand with a notable presence in the US. At the last check, ZTE held around 7 percent of the US smartphone market, making it the fourth largest manufacturer in the country.

For the company’s smartphone business, this ruling would lock ZTE out of using components such as the processors designed by US giants Qualcomm and Intel. This is likely to cause major stock issues for some of the company’s higher-end products, and will likely result in ZTE purchasing alternative chips from rival processor developers, such as MediaTek.

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Fortunately for ZTE, the company has not been banned from selling any products in the US. However, these restrictions will almost certainly have a major impact on the company’s growth plans, as many Chinese companies are still heavily reliant on US tech imports to build other products. ZTE shares were suspended from trading in Hong Kong earlier today upon announcement of the news.