U.S. boycotts China telecom giant ZTE over Iran case

A Chinese national flag and two flags bearing the name of ZTE fly outside the ZTE R&D building in Shenzhen China

U.S. Commerce Department bans selling China's ZTE, It's never good when you're suddenly banned from selling to a major customer.

But instead of punishing those involved, "ZTE paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand", the Commerce Department said in a statement.

The U.S. Commerce Department Monday barred American companies from exporting to Chinese telecom equipment maker ZTE Corp. for seven years, while in the United Kingdom the National Cyber Security Centre has warned that using ZTE network equipment could pose a risk to national security.

ZTE's settlement with the USA followed a multiyear investigation into claims that it violated US sanctions against Iran and North Korea by selling electronics to those countries.

Washington has also deepened its scrutiny of Chinese investment in the US, with the Committee on Foreign Investment in the United States (CFIUS), blocking many proposed acquisitions of USA assets by Chinese companies. ZTE, they say, has refused to discipline the employees responsible as per the agreement.

ZTE suspended trade on the Shenzhen and Hong Kong bourses on Tuesday as it became engulfed in the controversy.

Having suffered a loss of 767.8 million Chinese yuan ($122 million) in 2016, ZTE bounced back with a net profit of more than RMB6.7 billion ($1.1 billion) previous year, with sales up 7.5%, to RMB108.8 billion ($17.3 billion).

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China's Ministry of Commerce (MOC) said in a statement released on its official website that ZTE has conducted investment and trade cooperation with hundreds of enterprises in the U.S. and created thousands of jobs in the country.

The sales ban came on the same day that it was revealed that the UK's National Cyber Security Centre (NCSC) has warned telecoms companies and other network operators of its "security concerns" with networking hardware made by Chinese vendor ZTE. Its products, including smartphones, use such American parts as microprocessors from Qualcomm, glass made by Corning, and sound technology from Dolby.

That's the position Acacia Communications Inc.

The U.S. action could be catastrophic for ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE's equipment, which includes smartphones and gear to build telecommunications networks. Oclaro generates about between 10% and 15% of revenue from both Huawei and ZTE and gets another 10% from Nokia.

Other optical component companies also slid, with Lumentum Holdings Inc falling 8.9 percent and Finisar Corp dropping 4 percent.

ZTE has sold handset devices to USA mobile carriers AT&T Inc, T-Mobile US Inc and Sprint Corp. ZTE may have to either buy from a competitor or get chips from a Taiwanese company whose products generally lag those of its USA rival's in performance.

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