The U.S. Department of Commerce has banned American companies from selling components to telecommunications firm ZTE after the Chinese company allegedly made false statements to U.S. regulators.
ZTE, which makes smartphones and telecommunications network gear, is a customer of Qualcomm. It’s unclear how the export order might affect the San Diego cellular technology company. Qualcomm declined to comment.
On its website, ZTE says it is the fourth largest supplier of smartphones in the U.S., serving all four major wireless operators with low and mid-price handsets — including devices for pre-paid plans.
Efforts to reach ZTE America in Richardson, Texas, were unsuccessful. A call to the Department of Commerce was not returned on Monday.
The ban was issued by the Commerce Department’s Bureau of Industry and Security, which monitors the sale of U.S. technology to overseas firms.
According to the Commerce Department, Monday’s action stems from ZTE’s failure to live up to terms of a March 2017 civil and criminal settlement with U.S. regulators.
The settlement involved telecommunications gear that ZTE supplied to Iran that contained U.S. components in violation of a trade embargo. It also covered ZTE’s shipment of equipment to North Korea in violation of export restrictions.
As part of the settlement, ZTE told U.S. officials that it had reprimanded and cut bonus payments to more than three dozen employees involved in the transactions.
When U.S. regulators sought confirmation this past February, ZTE revealed that it paid full bonuses to many of those employees and didn’t issue letters of reprimand until after the U.S. regulators began making inquiries.
“ZTE misled the Department of Commerce,” said Commerce Secretary Wilbur Ross said in the statement. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
Last year’s agreement suspended $300 million in fines and it set aside a seven-year denial of ZTE’s export privileges during a probationary period. On Monday, the Bureau of Industry and Security implemented the previously suspended sanctions.
ZTE argued that the bureau should wait until the company completed an internal investigation to find out what happened.
But the bureau found the reasons behind the failure to comply are “red herrings to … concerns that the company has repeatedly made false statements to the U.S. government — as the company has now repeatedly admitted.”
The ZTE action comes amid rising trade tensions between the U.S. and China, which could be affect Qualcomm beyond ZTE.
Qualcomm also is awaiting approval from China’s top economic regulator for its proposed $43 billion acquisition of Dutch automotive chip maker NXP Semiconductors.
Buying NXP is a key piece of Qualcomm’s strategy to diversify its business beyond a saturated smartphone market. While eight other countries have signed off on the deal, China’s Ministry of Commerce — or MOFCOM — has yet to give the go ahead. Its review timetable expires this week.
Qualcomm reportedly plans to pull and refile for merger approval with MOFCOM to keep the clock ticking on the transaction for another 180 days.
Qualcomm’s shares dipped 96 cents Monday to close at $54.77 on the Nasdaq exchange.
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