When the Department of Commerce slapped a seven-year ban on ZTE, blocking it from buying or using components made by U.S. companies, things looked bad for the world’s fifth-largest smartphone maker. Though until ZTE had a chance to sort things out, we didn’t know exactly what the full impact would be.
However, based on a filing ZTE made earlier today, the company seems to be in dire straits as it announced it was ceasing “major operating activities” as a result of the denial order. ZTE said in the filing, “[as] of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject to compliance with laws and regulations,” which essentially means that it will be using banked money to operate on life support and fulfill any previous contractual duties while the company figures out what to do next.
ZTE also added that the company was in talks with the U.S “[in] order to facilitate the modification or reversal of the Denial Order by the U.S. government and forge a positive outcome in the development of matters,” and on Sunday, the company filed an appeal in hopes of overturning the DoC’s ban. According to Reuters, last week, the Chinese government also broached the subject of ZTE’s ban to a U.S. trade delegation that was visiting Beijing to discuss recent tariffs instituted between the two countries.
While there’s a chance the ban could be reversed, based on statements made by U.S. intelligence agencies saying that products made by Chinese companies such as Huawei and ZTE “[provide] the capacity to conduct undetected espionage,” and following efforts by the U.S. government to prevent those companies from doing business in the states, forcing ZTE to cease business operations seems like the exact outcome the U.S.’ recent policies were intended to accomplish.
If ZTE is forced to drop out of the phone market, there will be a sizable void left in its wake, especially when it comes to budget and mid-range segments.