UPDATED: ZTE to be effectively pushed out of US markets

[WMGroomAK]

In what can be viewed as a potential follow-up from a previous story (linked below), the US Dept. of Commerce has enacted a Denial Order related to a plea agreement last year concerning ZTE's providing telecomm equipment to North Korea and Iran.  This denial order will prohibit American companies, like Qualcomm & Intel, from selling and exporting components to ZTE for up to 7 years. 

 

Hot Hardware Article: https://hothardware.com/news/us-bans-zte-from-buying-components-from-american-suppliers-including-qualcomm

Quote

Chinese hardware OEM ZTE has just been hit hard by the U.S. Department of Commerce after the company pled guilty to illegally providing telecommunications equipment to Iran and North Korea and lying about its actions. ZTE agreed to pay nearly $1.2 billion in civic and criminal penalties for shipping the goods, making false statements, and obstructing justice.

While the financial penalties were no doubt significant, the Department of Commerce has an even stiffer penalty for the company that was announced today (terms of which ZTE agreed to comply with as part of the original plea agreement). American companies like Qualcomm will now be unable to export components to ZTE for a period of up to seven years.

The Department of Commerce alleges that the ZTE didn't comply with the terms of its probationary period, and failed to take disciplinary action against senior leadership that was involved in the original transgressions. ZTE also lied about its failure to censure its employees. To make matters worse, the company actually gave bonuses to these executives instead of firing or censuring them.

 

“ZTE misled the Department of Commerce.  Instead of reprimanding ZTE staff and senior management, ZTE rewarded them.  This egregious behavior cannot be ignored,” said Secretary of Commerce Wilbur L. Ross.

 

Given that ZTE did not fully comply with its plea deal, the original seven-year ban is now in full effect. 

 

ZTE provides budget smartphone to all four major wireless carriers: Verizon Wireless, AT&T, T-Mobile and Sprint. The ZTE Axon M, for example, is an outlandish Android smartphone with dual, folding 5.2-inch 1080p displays. The device is powered by a Qualcomm Snapdragon 821 processor and is available on AT&T's network. In fact, most of ZTE's smartphones sold in the U.S. use Qualcomm processors and baseband chips in order to support our wireless bands.

 

The penalties handed down by the Department of Commerce could be devastating to ZTE's U.S. operations, and could sting suppliers like Qualcomm and Intel to a lesser extent. ZTE's misfortunes happen at a time when Chinese rival Huawei has also been effectively pushed out the U.S. market by the government.

This would appear to me that it will effectively stop any new ZTE devices from being sold into the American Market at least, however, it will also probably really limit what ZTE can build hardware wise as it would appear they can no longer get any Qualcomm chips for their devices (at least through direct sales).  While I'm sure the US market was probably only a small portion of their overall business, the potential loss of American company sales and exports of hardware would seem like a fairly significant issue...

 

US Dept. of Commerce Press Release: https://www.commerce.gov/news/press-releases/2018/04/secretary-ross-announces-activation-zte-denial-order-response-repeated

US Dept. of Commerce Denial Order:  https://www.commerce.gov/sites/commerce.gov/files/zte_denial_order.pdf

 

 

UPDATE:  In an update to the Denial Order story, Quartz is reporting on an internal report by the Chinese State-owned Assets Supervision and Administration Commission  (SASAC) that appears to be fairly critical of ZTE and it's dealings with US Regulators.

 

https://qz.com/1259199/an-internal-chinese-government-report-slammed-telecom-giant-zte-for-lying-to-the-us/

Quote

The report from the State-owned Assets Supervision and Administration Commission (SASAC), the top regulator of Chinese state-owned enterprises under China’s cabinet, criticized ZTE’s dealings with the US regulators as “stupid and passive,” and embarrassing to China’s global image. “Many domestic enterprises are paying a terrible price for ZTE’s short-sightedness and dishonesty. Our country’s diplomatic layout and image will inevitably be affected,” said the report, dated April 20.

It also criticized the domestic environment for lacking “social integrity,” and said that in ZTE’s case this spread to its overseas operations.
“Relevant leaders at ZTE Corporation have no legal or confidentiality awareness. They’ve taken risks to engage in illegal operations numerous times. That’s not only related to the broader environment where social integrity in China is not high, but is also an export of the domestic lack of integrity to foreign countries,” the report wrote.
Quartz has asked ZTE about the regulator’s report and will update with any comment. ZTE’s largest shareholder is a state-backed company linked to China Aerospace Science & Industry Corporation (CASIC), a major contractor for China’s space program and missile weapons.
News portal Sina first wrote about the report on April 22, but the article was soon deleted (link in Chinese, cached version). When contacted by Quartz in a phone call, a staffer with SASAC’s research center confirmed that Wang Jiang—who is stated as the author of the report—is affiliated with the center. But the person said she wasn’t in a position to confirm the authenticity of the report. Wang couldn’t be reached directly.

...

But the report cited many lapses in ZTE’s operations. The company’s legal team “exists in name only,” the report wrote. When traveling to the US, according to the report, a secretary of ZTE’s chairman once carried a computer with corporate documents about equipment sales to Iran, which was seized by US Customs. “According to our country’s regulations, such confidential materials can never be taken abroad,” the report noted.

Citing ZTE’s connection to the state-run space and military contractor, the report called on the government to come up with a “temporary aid plan” to ensure the US ban won’t cause ripple effects on the country’s military-industrial corporations, along with telecoms, trade, and other firms relating to ZTE. The report also called for the regulator to exert stricter control over Chinese state-owned companies in relation to reporting potential risks relating to their foreign businesses to the agency in a timely manner.
The report did take up one popular refrain though: that the ZTE ban, and the trade war, should be seized as an opportunity for China to catch up with the US in the semiconductor industry—in a level-headed manner. “We must correctly understand our shortcomings, adhering to not only independence but also reforms and opening up. We should use the ZTE incident as a chance to make up the systematic shortcomings of state-owned enterprises, in order to lay a good foundation for future international competition and cooperation,” it wrote.
State media and tech titans like Alibaba’s Jack Ma have also seized on the US action as a chance to make the case that China must reduce its reliance on core foreign technologies—something that Beijing has long been looking to change. In 2015, the government set a goal for Chinese industry to rely on domestic sourcing for 70% of core components and materials by 2025.

So it would appear that ZTE's leadership might be in some serious hot water at home, but that the Chinese Government will work to keep the company in operation due to  potential economic and military security impacts.

Edited April 23, 2018 by WMGroomAK
Updated information

[Drak3]

While I don't necessarily fully agree or disagree with the decision, can't say I'? Particularly sad. Outside of the Axon M, they didn't have any decent offerings over competition.

[TimeOmnivore]

Can't say I'm particularly sad about this. Currently using one of their phones (Blade V8 Pro), which I got on sale, - still on Android M and only recently got February's security updates, having previously only had October's. The phone itself works mostly fine, it just has security/update issues and a few missing features (namely system-wide audio balancing). Wasn't planning on purchasing else from them at any point down the line, so this is fine.

[Catsrules]

I wonder if ZTE could get around most of this by starting up a new company under a different name.

 

[WMGroomAK]

4 minutes ago, Catsrules said:

I wonder if ZTE could get around most of this by starting up a new company under a different name.

 

From reading the penalties part in the denial order, I think that they would have to completely change up their corporate structuring in order to do that and honestly don't see that as financially feasible...  

 

Quote

IT IS THEREFORE ORDERED:
First, from the date of this Order until March 13, 2025, ZTE Corporation, with a last known address of ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, China, and ZTE Kangxun, with a last known address of 2/3 Floor, Suite A, Zte Communication Mansion, Keji (S) Road, Hi-New Shenzhen, 518057 China, and when acting for or on their behalf, their successors, assigns, directors, officers, employees, representatives, or agents (hereinafter each a "Denied Person"), may not, directly or indirectly, participate in any way in any transaction involving any commodity, software or technology (hereinafter collectively referred to as "item") exported or to be exported from the United States that is subject to the Regulations, or in any other activity subject to the Regulations, including, but not limited to: 

• Applying for, obtaining, or using any license, license exception, or export control document; 
• Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or engaging in any other activity subject to the Regulations; or 
• Benefiting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or from any other activity subject to the Regulations. 

SECOND, no person may, directly or indirectly, do any of the following: 

• Export or reexport to or on behalf of a Denied Person any item subject to the Regulations; 
• Take any action that facilitates the acquisition or attempted acquisition by a Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the
  United States, including financing or other support activities related to a transaction whereby a Denied Person acquires or attempts to acquire such ownership, possession or control: 
• Take any action to acquire from or to facilitate the acquisition or attempted acquisition from a Denied Person of any item subject to the Regulations that has been exported from the United States: 
• Obtain from a Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or 
• Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by a Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by a Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing

THIRD, after notice and opportunity for comment as provided in Section 766.23 of the Regulations, any person, firm, corporation, or business organization related to a Denied Person by affiliation, ownership, control, or position of responsibility in the conduct of trade or related services may also be made subject to the provisions of this Order. 

 

 

 

[dtaflorida]

Damn, I guess I can stop checking for a new flagship replacement to the Axon 7. 

[Guest The Viking]

So wait, the US government can just ban entire companies out of their market for breaking the law? Ok, ok, Iran and North Korea, wooh, scary country dying of hunger with atomic weapons driven to the corner by the very nice US government.

 

Why aren't we doing that in Europe? We should start banning Intel, Microsoft, Facebook, Google & Apple until they follow our laws. Should pitch the idea to the EC.

[AresKrieger]

1 hour ago, The Viking said:

Why aren't we doing that in Europe?

Simple member states can't agree on a course of action and they don't have sanctions against the US, the grounds of this are to prevent circumnavigation of sanctions.

[Ithanul]

1 hour ago, The Viking said:

So wait, the US government can just ban entire companies out of their market for breaking the law? Ok, ok, Iran and North Korea, wooh, scary country dying of hunger with atomic weapons driven to the corner by the very nice US government.

 

Why aren't we doing that in Europe? We should start banning Intel, Microsoft, Facebook, Google & Apple until they follow our laws. Should pitch the idea to the EC.

If I recall, have to go look back at BBC.  I saw an article out the UK cyber defense saying ZTE posed a risk.

 

Yep, here it is:  http://www.bbc.com/news/technology-43784990

 

Near the bottom it also states why the US is doing the sanctions.  Pretty much, ZTE got fined and promised to do discipliner action within the company, but they did not follow through all the way.

[dizmo]

That's unfortunate to hear, I was really looking forward to the Axon 9. Should be interesting to see what they do. Maybe they'll push to get some Huawei SoCs. It's interesting, the US can do this now, however we're very close to the US companies being rather irrelevant. Samsung and Huawei both make excellent SoC's, very close to what Qualcomm offers.

10 hours ago, Drak3 said:

While I don't necessarily fully agree or disagree with the decision, can't say I'? Particularly sad. Outside of the Axon M, they didn't have any decent offerings over competition.

The Axon 7 was a beast when it was released; much better than the OnePlus released at the same time, for the same price.
I had high hopes for the Axon 9, but now those are dead

6 hours ago, The Viking said:

So wait, the US government can just ban entire companies out of their market for breaking the law? Ok, ok, Iran and North Korea, wooh, scary country dying of hunger with atomic weapons driven to the corner by the very nice US government.

 

Why aren't we doing that in Europe? We should start banning Intel, Microsoft, Facebook, Google & Apple until they follow our laws. Should pitch the idea to the EC.

They're banning US companies from doing business with them. So it's more than just not allowing them to sell their products in the USA.

IIRC you do levy massive penalties and judgements against those companies. They just comply to EU regulations, thus, they're fine.

That's why the EU has their own version of Windows.

[Guest The Viking]

4 hours ago, dizmo said:

That's why the EU has their own version of Windows.

and our own version of pretty much everything at this point, it's weird 

[jefire411]

On 4/16/2018 at 1:41 PM, Drak3 said:

While I don't necessarily fully agree or disagree with the decision, can't say I'? Particularly sad. Outside of the Axon M, they didn't have any decent offerings over competition.

The ZTE Axon 7 and the upcoming 8 (9?) would probably have been good also if they still had access to SD chips.

[Drak3]

7 minutes ago, jefire411 said:

The ZTE Axon 7 and the upcoming 8 (9?) would probably have been good also if they still had access to SD chips.

Not good enough though.

[jefire411]

1 hour ago, Drak3 said:

Not good enough though.

The Axon 7 was praised by phone reviewers along with the Honor 8 as the best bang for buck mid rangers at the time.

[dtaflorida]

Yep, the Axon 7 has served me well for a $350 and free headphones in 2016. The battery isn't holding much of a charge anymore, so it's time to replace it. Looking for some cheap options, strangely ZTE show up on android central as having some models to come in 2018 with the SD845. 

[WMGroomAK]

17 minutes ago, dtaflorida said:

Yep, the Axon 7 has served me well for a $350 and free headphones in 2016. The battery isn't holding much of a charge anymore, so it's time to replace it. Looking for some cheap options, strangely ZTE show up on android central as having some models to come in 2018 with the SD845. 

Fairly sure that they started work on those products prior to the denial order being enacted so they may have devices and SD845s already allocated and in the production cycle, however, they probably won't be able to get any more Qualcomm parts going forward until 2025.

 

Anandtech also wrote up a bit on the finer details of what this involves...

 

https://www.anandtech.com/show/12657/doc-zte-denial

 

Quote

The activation of the Denial Order has broad consequences for ZTE as it blocks the company in participating in any transaction of “technology” that is subject to the EAR.

 

What the EAR covers is extremely precise and fine-grained as it tries to characterise military-grade equipment technology. The categories that would most impact ZTE are items falling under categories 3, 4 and 5; Electronics Design Development and Production, Computers, and Telecommunications & Information Security. The telecommunications document is particularly interesting as it covers ubiquitous technologies in use in today’s networking and mobile devices. The EAR makes clear exceptions to radio technologies covered by ITU standards, however then goes on to more specific items which possibly apply to cellular modems and base stations.

 

ZTE’s main business is networking equipment where they are a major player alongside other mentionable companies such as Nokia, Ericsson, Huawei and Cisco. Category 3 covering Electronics Design Development has a lot more broad implications for this business as it covers semiconductor components that not only can be present in US exported products but may be IP that ZTE licenses to use in-house in their custom networking chipsets. If this is the case, there are wider implications at play as it would severely block the company from developing equipment.

 

On the consumer devices side ZTE makes heavy reliance on Qualcomm SoCs to power their smartphone products. We briefly talked with ZTE during last MWC about their partnership with Qualcomm and were told that the relationship is very strong and ZTE had continued plans to use Qualcomm chipsets in the future. We have reached out to Qualcomm for comment but haven’t had a response yet, however we see on Qualcomm’s Export Control Assurance (ECA) form the following confirmation of company's products being subject to the regulation:

Quote

Qualcomm Incorporated, its subsidiaries and affiliates’ ("Qualcomm") hardware, software, source code and technology (collectively, “Products”) are governed by the export laws of the US and other countries where we do business.  Products obtained from Qualcomm, are subject to the US Government (“USG”) export control and economic sanctions regulations, including the Export Administration Regulations (“EAR”, 15 CFR 730 et seq.)

...

While I’m not too clear on the exact legal ramifications here and this is just my interpretation, it seems that if Qualcomm would be outright blocked from issuing ZTE an ECA, which is essentially an EAR waiver, and thus not able to sell any of its products to ZTE anymore.

 

The ramifications could go even further because seemingly the EAR applies to re-exports as well, so any other company using US IP would in theory be blocked from selling to ZTE. Semiconductor companies such as SoC vendors make wide use of common foundation IP which often can come from US vendors, say from Cadence or Synopsys. If such products fall under the EAR, then the regulations could have a domino effect on the product chain and also involve non-US silicon vendors such as MediaTek or Samsung.

 

[Drak3]

59 minutes ago, jefire411 said:

The Axon 7 was praised by phone reviewers along with the Honor 8 as the best bang for buck mid rangers at the time.

Honestly, most phones get rave reviews and hearing "DIS DA BEST BLAH BLAH BLAH" on the phones that are new amounts to about the same thing as Intel Optane reviews. Nothing meaningful to anyone that isn't a reviewer.

[jefire411]

4 hours ago, Drak3 said:

Honestly, most phones get rave reviews and hearing "DIS DA BEST BLAH BLAH BLAH" on the phones that are new amounts to about the same thing as Intel Optane reviews. Nothing meaningful to anyone that isn't a reviewer.

well that depends on what item is being reviewed. It could be CPUs, there are a lot of CPUs that could be good "bang for buck" to reviewers regardless of age if it performs well to their standards.

[dtaflorida]

18 hours ago, Drak3 said:

Honestly, most phones get rave reviews and hearing "DIS DA BEST BLAH BLAH BLAH" on the phones that are new amounts to about the same thing as Intel Optane reviews. Nothing meaningful to anyone that isn't a reviewer.

They are much of a muchness.

 

Can't say I feel I missed much by going with the Axon 7 $400 over the Galaxy s7 $770 or any other phone with the SD820 chipset. 

 

Its really nice to have that choice. Save me a few hundred bucks and deliver me a stock standard Android experience with minor UI tweaks. I don't care about the camera or fingerprint reader. I'm actually more in the market for a NVIDIA Shield LTE tablet replacement, but tablets have been dead for a while, much less tablets with LTE, so phablet it is. 

 

Man... ZTE's USA website still only lists the Axon 7 as it's highest phone... WTF.

[WMGroomAK]

Updated the original post to reflect a potential report from the Chinese Government that is fairly critical of ZTE over the handling of this...  Does not sound like their government is happy with how ZTE has managed this whole situation and some people may be out of business fairly soon, even if the government keeps the company going.

 

https://qz.com/1259199/an-internal-chinese-government-report-slammed-telecom-giant-zte-for-lying-to-the-us/