The Chinese telecommunications equipment maker ZTE is in a tight spot, as the U.S. Commerce Department is imposing export restrictions for allegedly violating U.S. export controls on Iran.
Suppliers of ZTE will no longer be able to send U.S. products easily to the company, as they will now need an export license once the restrictions are officially implemented. The regulations will take effect on a global scale, and apparently, the majority of the applications are set to be denied.
"This is a significant new burden on trade with ZTE," an official at the U.S. Commerce Department tells Reuters, refusing to respond about whether the U.S. government will act against ZTE any further.
ZTE released a statement in light of the matter, saying that it is aware of the restrictions and that it is willing to cooperate to work things out.
"ZTE is highly concerned about recent media reports relating to a U.S. Department of Commerce investigation. ZTE has been working with associated U.S. government departments on investigations since 2012 and maintains constant communication with associated departments and is committed to fully address and resolve any concerns," ZTE says.
Reports say that ZTE signed agreements to deliver U.S. hardware and software that amounts to millions of dollars to the Telecommunication Company of Iran, the country's biggest carrier, and to another entity within the association that has control over it.
American-made products have been banned for export to Iran for a long time now. The focus of the U.S. Commerce Department in this case is whether or not ZTE obtained the products in question via front companies and sent them to Iran, violating the rules.
ZTE produces a wide range of products, including handsets, routers, software, services and whatnot for telecommunications operators. Exact details of these devices aren't easily available to the public, but it's safe to assume that a good portion of those take advantage of components or software made in the United States, not to mention that the company has business relationships with U.S. firms such as IBM, Microsoft and Qualcomm.
To save even just a small part of the revenue, ZTE could rely on chipsets from other countries to keep production of low-range mobile phones, according to analyst Cynthia Meng of Jefferies. However, since chips from other countries also use U.S. components, that endeavor could pose quite the challenge.
As of right now, it's difficult to tell how exactly and how much the restrictions will affect ZTE business-wise, but it will definitely cause "significant supply problems" as Meng puts it.
