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ZTE Stock Rises After US Lifts BanZTE Stock Rises After US Lifts Ban

Chinese vendor's share price rises in Hong Kong after the US finally lifts a ban that has stopped it from acquiring US components for the past three months.

Iain Morris

July 16, 2018

4 Min Read
ZTE Stock Rises After US Lifts Ban

ZTE's share price gained 16% in Hong Kong after the US Commerce Department lifted a ban on the sale of US components to the Chinese equipment vendor, allowing it to resume business after a three-month hiatus that has taken a heavy toll. (See ZTE nearly back in business after inking US 'escrow' deal.)

The company's share price closed at HK$15.92 on Monday but remains well down on its level of HK$25.60 in mid-April, when ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) suspended trading after the imposition of the US ban.

At the time, US authorities said the company had lied about disciplining staff and making other changes after it was last year found to have violated sanctions by selling gear in Iran and North Korea.

The ban was effectively a death sentence for ZTE because it uses components from a range of US suppliers in most of its products.

In June, the Commerce Department said it would lift the ban if ZTE paid a $1 billion fine and placed another $400 million in a bank account that US authorities can access if there is further wrongdoing. ZTE also agreed to replace managers and employ a team of watchdogs, who will report to US authorities. (See ZTE Appoints New CEO – Report, US Lifts Some Restrictions on ZTE, ZTE Unveils New Board in Effort to Appease US Lawmakers and ZTE Fined Another $1B in Rescue Deal With US.)

The Commerce Department lifted the so-called denial order late on Friday after indicating ZTE had met its requirements.

"While we lifted the ban on ZTE, the Department will remain vigilant as we closely monitor ZTE's actions to ensure compliance with all US laws and regulations," said Wilbur Ross, the US Secretary of Commerce, in a statement. "Three interlocking elements -- a suspended denial order, the $400 million in escrow, and a compliance team selected by and answerable to the Department -- will allow the Department to protect US national security."

ZTE had been on the brink of going out of business before the Commerce Department's June intervention, and the march back to full health may be long and difficult. (See ZTE in Existential Crisis as It Slams 'Unfair' US Ban, Considers 'Judicial Measures' and ZTE Ceases Business Operations After US Ban.)

It was reported to have racked up losses of $3 billion just weeks after the ban came into force, although the full financial impact may become apparent when ZTE publishes its next earnings update. (See ZTE Racks Up Losses of $3B After US Ban – Report and ZTE Is Still in the Danger Zone.)

A fine of $1.4 billion works out at 8.6% of ZTE's sales in 2017 and comes on top of a $900 million penalty that ZTE paid last year after it was accused of breaching sanctions against Iran and North Korea. (See Pinpricks & Big Sticks: An Anatomy of Telco & Tech Fines.)

In replacing managers at or above the level of senior vice president, ZTE has lost much of the expertise that enabled it to compete against Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. and Nokia Corp. (NYSE: NOK) -- the giants of the telecom equipment market.

Service providers have also been reviewing their relationships with ZTE, which recently appeared to lose Italy's Wind Tre as a customer to Ericsson.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

Moreover, ZTE continues to face hostility in the US, where opponents of the Commerce Department's rescue plan have argued that a ban should remain in force.

Senator Marco Rubio, an outspoken critic of that plan, was reported on Friday to have said that ZTE, which employs about 75,000 people internationally, should be driven out of business.

"ZTE should be put out of business," he said, according to the Washington Examiner. "There is no 'deal' with a state-directed company that the Chinese government and Communist Party uses to spy and steal from us where Americans come out winning."

Other critics have similarly accused Chinese companies of intellectual property theft and continue to regard them as a threat to national security because of their close links with the Chinese government.

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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