ZTE shuts down main business operations as it hopes for ban reversal

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HONG KONG (Reuters) – ZTE Corp’s main business operations have ceased due to a ban imposed by the US government, but China’s second biggest telecom equipment maker is trying to have the ban modified or reversed, it said on Wednesday.

ZTE was hit by a ban last month from Washington, forbidding US firms from supplying it with components and technology after it was found to have violated US export restrictions by illegally shipping goods to Iran.

“As a result of the Denial Order, the major operating activities of the company have ceased,” the company said in the exchange filings late on Wednesday.

“As of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject in compliance with laws and regulations,” it said.

The US action, first reported by Reuters, could be devastating to ZTE.

As one of the world’s largest telecom equipment makers alongside Huawei, Ericsson and Nokia, ZTE relies on US companies such as Qualcomm and Intel for up to a third of its components.

Analysts have said it will be hard for the company to stay competitive even if it could find non-American suppliers.

Taiwanese semiconductor company Mediatek said last week it had received a permit from the Taiwanese government to continue to supply ZTE.

ZTE said it was actively communicating with the US government “in order to facilitate the modification or reversal of the Denial Order by the US government and forge a positive outcome in the development of matters.”

The ban that threatens to cut off ZTE’s supply chain came amid heightened tension over a possible US-China trade war. The Chinese government raised the issue last week with a visiting US trade delegation.

ZTE said on Sunday it had submitted a request to the US Commerce Department for the suspension of the ban.

The company appears to have suspended its online stores on its own website as well as on Alibaba Group’s e-commerce platform Taobao over the past few days, which display a “page being updated” message with no products to order.

The Chinese firm did not respond to calls and messages from Reuters seeking comment.

US wireless operator Consumer Cellular’s chief executive John Marick said in an interview that ZTE was unable to continue supplying phones after the sanctions, but had asked the company to hold inventory spots open as it worked to resolve the export ban.

Marick said ZTE has not given guidance on whether its phones can continue receiving software updates from Android, and discussions between the companies have been about ensuring the Chinese firm can supply parts and service to honor phone warranties.

A ZTE employee told Reuters that staff had been reporting to work as normal but “with not much to do”. The employee, who declined to be named, said business trips had been halted.

Employees at ZTE’s headquarters in the southern Chinese technology hub of Shenzhen were cagey about speaking to reporters after the ban was announced, but some voiced concerns.

One employee said this was the “the biggest challenge” for ZTE since he joined ten years ago. Another said he hoped the Chinese government would help, saying he was confident President Xi Jinping would “sort out this trouble”.

ZTE settled the sanction case with the US government last March after admitting to illegally shipping products with US technology to countries including Iran and paying a record fine of nearly $900 million.

Last month, the US government reactivated the ban after it said the company violated terms of the settlement and made repeated false statements, which ZTE disputed.

(By Sijia Jiang; Reporting by Sijia Jiang and James Pomfret; Additional reporting by Sheila Dang in New York; Editing by Jason Neely and Marguerita Choy)

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