ZTE agrees to pay $892 million for violating US sanctions, wiping out 2 years of profits

Posted:
in iPhone edited March 2017
Chinese phone maker ZTE has agreed to plead guilty on charges of violating U.S. sanctions restricting the sale of American technology to Iran and North Korea, and lying about it to investigators. It will pay $892 million in fees, effectively wiping out about two years of the company's net profits.




According to a report by the Wall Street Journal, ZTE's penalties targeted the firm's practice of acquiring American technology and reselling it in the form of ZTE equipment to Iran and North Korea over a six-year period between 2010 and 2016.

The report cited the U.S. Justice Department's national security division lead Mary McCord as saying, that "the highest levels of management within the company approved the scheme" to violate U.S. sanctions, and said ZTE "repeatedly lied to and misled federal investigators."

ZTE sold nearly 62 million smartphones in 2016. The company is China's third largest phone maker by global unit sales after Huawei and BBK (which markets phones under the brands Oppo, vivo and OnePlus). However, unlike other major Chinese phone makers, ZTE has been able to meaningfully enter the U.S. market, selling 11 percent of domestic smartphones for fourth place market share behind Apple's 39 percent, Samsung's 19 percent and LG's 13 percent of U.S. sales.

"ZTE has been on [a] growth spurt in US," noted Neil Shah of Counterpoint Research in a Tweet, adding that the "$892M fine will put brakes on marketing spend & expansion in US & globally."

The company's significant U.S. presence likely induced the company to cooperate with U.S. officials after a five-year investigation. Without agreeing to the penalties, the company faced trade sanctions of its own which would have blocked it from buying components from U.S. firms including Qualcomm, which the report noted would have put it "at risk of bankruptcy."

The $892 million penalty is among the largest ever charged in a trade sanctions case, and the largest ever leveled against a non-financial entity. It contributed to ZTE reporting losses of $342 million last year rather than nearly a half billion in profits.

Over the past year, the U.S. had been applying severe restrictions to ZTE and its U.S. suppliers to force the company to cooperate with the investigation. One side effect of that pressure has been an acceleration in efforts by China to develop domestic alternatives to U.S. technologies. ZTE announced plans to develop its own operating system based on Linux, and to develop its own Application Processors to avoid dependence on U.S. suppliers

Just over a year ago, ZTE announced plans to develop its own operating system based on Linux, and to develop its own Application Processors to avoid dependence on U.S. suppliers.

China's Huawei has already produced its own Kirin smartphone chip, and is reportedly also working on an internal OS to similarly avoid "the crutch of Android."

ZTE remains under a three-year probation and faces an additional $300 million penalty and denial of export privileges that will both be suspended for seven years if the company complies with the terms of its agreement.

"If the suspension is removed, they'll probably be put out of business," noted Eric Hirschhorn, the former Under Secretary at the Commerce Department.

Comments

  • Reply 1 of 11
    calicali Posts: 3,495member
    I love seeing thieves pay. 

    Now for the U.S. to go after other android scumbags. 
    jbdragonwatto_cobra
  • Reply 2 of 11
    SpamSandwichSpamSandwich Posts: 30,840member
    The requirement of "technology transfer" in exchange for access to Chinese markets needs to end. Could be a good restriction on American companies seeking to make such unfair exchanges in the future. China is a country built on thievery.
    jbdragonboltsfan17watto_cobra
  • Reply 3 of 11
    tzm41tzm41 Posts: 82member
    China is a country built on thievery.
    An argument that is both ignorant and insulting.
    spheric
  • Reply 4 of 11
    croprcropr Posts: 914member
    cali said:
    I love seeing thieves pay. 

    Now for the U.S. to go after other android scumbags. 
    The article is about export American technology to Iran and North Korea.  Whether ZTE has paid for the American technology or not, is not part of the investigation.  Your rant about thieves is totally irrelevant here.

    hmm
  • Reply 5 of 11
    FatmanFatman Posts: 262member
    tzm41 said:
    China is a country built on thievery.
    An argument that is both ignorant and insulting.
    But also true - I have seen the factories first hand.
    jbdragonSpamSandwichwatto_cobra
  • Reply 6 of 11
    freeperfreeper Posts: 77member
    cropr said:
    cali said:
    I love seeing thieves pay. 

    Now for the U.S. to go after other android scumbags. 
    The article is about export American technology to Iran and North Korea.  Whether ZTE has paid for the American technology or not, is not part of the investigation.  Your rant about thieves is totally irrelevant here.

    He is part of the cabal that simply resents the fact that Apple has competition of any kind. Never mind that Apple's competition accounts for like 85% of the "new features" in the iPhone since the iPhone 4s, or that were Apple to actually enjoy the sort of monopoly that they want, Apple would have gotten hammered with the same sort of anti-trust lawsuits that targeted Microsoft a couple of decades back and now threaten Google. ZTE makes good, affordable products. And no, their phone designs do not resemble iPhones in any way. And yes, they entered the smartphone business long after Android was viable thanks to Samsung, LG and HTC paving the way, and other manufacturers had figured out a business model on making quality products and selling them at enough volume to make profits on low margins. $450 million a year is peanuts to Apple, but it is more than worth their while, and the same is true of a lot of other Android OEMs, especially those for whom Android phones is not their primary revenue stream (which is the case for LG, Huawei, Asus, Lenovo, LeCo and a bunch of others). So if anything, their designs copy Samsung Galaxy phones and their success has nothing to do with Apple. As ZTE's phones cost 1/3 to 1/2 as much as the Apple equivalent, their going out of business would not add a single device sale to Apple. Instead, their sales would go to Xiaomi in China and probably Huawei and Samsung outside of China.
    gatorguy
  • Reply 7 of 11
    damn_its_hotdamn_its_hot Posts: 1,185member
    Fatman said:
    tzm41 said:
    China is a country built on thievery.
    An argument that is both ignorant and insulting.
    But also true - I have seen the factories first hand.

    .

    That is not the point. Your condemnation of China and their policies does not fit the framework of comments here. It is no more relevant than anything else of topic. BTW: the topic has to do with ZTE an penalties for violation of sanctions by selling to N. Korea & Iran. China is not in this group.
  • Reply 8 of 11
    boltsfan17boltsfan17 Posts: 2,158member
    Fatman said:
    tzm41 said:
    China is a country built on thievery.
    An argument that is both ignorant and insulting.
    But also true - I have seen the factories first hand.

    .

    That is not the point. Your condemnation of China and their policies does not fit the framework of comments here. It is no more relevant than anything else of topic. BTW: the topic has to do with ZTE an penalties for violation of sanctions by selling to N. Korea & Iran. China is not in this group.
    The apple doesn't fall far from the tree. ZTE is partially owned by the Chinese government. 
    SpamSandwichwatto_cobra
  • Reply 9 of 11
    welshdogwelshdog Posts: 1,657member
    The issues with ZTE here is not related to phone design. I'm sure there are many areas where they violated the rules, but one specific area is optical networking hardware. They buy the components for fiber optic data communication from companies like Oclaro, Finisar, Acacia etc. and then package that hardware in their own products which are sold worldwide, including Iran and N. Korea apparently. Intel and Quaalcom also sold to ZTE.  This fine they will pay allows ZTE to continue their business and doesn't harm US suppliers unnecessarily.  And natch, ZTE will get financial help from the Chinese government to pay the fine.
  • Reply 10 of 11
    SpamSandwichSpamSandwich Posts: 30,840member
    tzm41 said:
    China is a country built on thievery.
    An argument that is both ignorant and insulting.
    Surely you've never been to China then. I have on multiple occasions. Thievery is normal and expected.
    edited March 2017 watto_cobra
  • Reply 11 of 11
    Oliver ScottOliver Scott Posts: 1unconfirmed, member
    wow huge hit to take for the firm

Sign In or Register to comment.