ZTE shuts down main operations while talks with United States continue

ZTE shuts down main operations while talks with United States continue

The US trade war on China has claimed its first scalp, with telecoms giant ZTE announcing it had halted major business activities after the US government banned sales of the its equipment.

The company mentioned the change in a document published today, stating that "major operating activities...have ceased" without additional details on what, exactly, that means.

As punishment for breaking USA sanctions against Iran and North Korea, the Tump administration slapped a seven-year ban on American suppliers selling components, chips, and software to the firm. And ZTE's larger telecom gear-making operation probably ran afoul of the same component shortages, said Huang Leping, an analyst with CICC.

The company added that it's communicating with the USA government to have the denial order reversed or modified. Like ZTE before it, Huawei is reportedly under investigation in the USA for violating sanctions against Iran. The announcement comes after ZTE, China's second-largest telecom equipment company, was found by the U.S. to have illegally shipped its products to Iran, per Reuters.

ZTE was accused of violating United States sanctions on North Korea and Iran, as well as lying to United States officials. As of Thursday, its website and flagship smartphone store on Alibaba's Tmall online marketplace had suspended sales.

ZTE "maintains sufficient cash and strictly adheres to its commercial obligations subject to compliance with laws and regulations", it said in the statement issued to the Hong Kong stock exchange. ZTE settled a case with the USA government last March after admitting to illegally shipping products with US technology to countries including Iran and paying a record fine of almost $900 million.

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As a result, the US issued its denial order, forbidding ZTE from buying chips from companies such as Intel (intc) and Qualcomm (qcom), and optical components from Lumentum. As the US and China skirt the possibility of a trade war, the ZTE situation throws a new complication into the mix.

Part of the agreement included letting go of four of its senior employees and disciplining 35 others by reducing their bonuses or reprimanding them, Reuters notes.But according to the Department of Commerce, ZTE rewarded its employees for illegal conduct instead.

We'll keep you posted as this situation continues to unfold.

In attempt to find the now missing components that were supplied by American companies such as Qualcomm Inc. and Intel Corp., ZTE is turning to Taiwan-based chipmaker Mediatek Inc.

We've reached out to ZTE for further comment on the matter.

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