ZTE’s Forced ‘Hibernation’ Prompts Changes in GlobalData Coverage

John Byrne – Service Director, Global Technology Telecom and Software

Summary Bullets:

  • In light of the U.S. Department of Commerce’s April 15, 2018 activation of the denial order suspending ZTE’s export privileges for seven years, and ZTE’s May 9, 2018 announcement that it has ceased major operating activities, GlobalData has adjusted all its ZTE Company Assessment and Product Assessment rankings to ‘Vulnerable.’
  • If and when ZTE is able to return to normal operations, we will update these reports and ratings accordingly. However, if the U.S. Department of Commerce does not reverse its ruling, ZTE’s ability to continue as a going concern will be jeopardized.

The ongoing, existential threat to ZTE from the stiff sanctions imposed by the U.S. Department of Commerce last month has required GlobalData to revise its product and company rankings across the board to our lowest rating of ‘Vulnerable.’ The revisions affect ZTE assessments across all of our coverage areas, including Mobile Access, Fixed Multimedia Access, Transport & Routing, IP Services Infrastructure, Service Enablement Ecosystem, and Support & Operation Services. In total, we rank ZTE hardware, software, and services offerings in 20 categories.

There are some signs of hope, as the U.S. Department of Commerce has indicated that it is engaged in some form of internal review of its decision. For its part, ZTE is detailing the many steps it has taken in recent years to step up its compliance program. And its decision to shutter operations may have been designed in part to highlight the fact that its very existence is in jeopardy if the export ban is not lifted.

If the export ban is not lifted, then the widespread impact of the elimination of ZTE from the vendor landscape should be clear; the fact that we cover them across 20 product classes provides some indication of the far-reaching impact of the sanctions imposed on ZTE, as well as the broad implications for the complex supply chains required to build, run, and support the many hundreds of mobile, fixed, and cable networks in existence. As I noted in a previous blog, these sanctions have already had the unintended consequence of severely impacting a number of U.S. vendors, including Qualcomm, Google, and a number of optical component providers.

Huawei is reportedly under investigation for infractions similar to ZTE’s violations, raising the specter of additional sanctions against an even larger vendor with a global supply chain of its own. In addition, the stiff penalty on ZTE as well as any potential penalties against Huawei could invite sanctions from the Chinese government, which could pose additional harm to Western suppliers.

I, for one, am hoping that the U.S. government is able to appreciate the full impact of the ban as it reviews the seven-year export ban. But, given the current state of U.S.-China trade relations, I’m hopeful – but not terribly optimistic.

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