Published: Fri, June 08, 2018
Finance | By Kristine Clayton

Tech stocks gain as USA confirms ZTE deal

Tech stocks gain as USA confirms ZTE deal

ZTE will have to pay a $1 billion penalty, change its board and executive team within 30 days, and accept to embed a "compliance team" from the USA government within its organization.

Commerce Secretary Wilbur Ross says the usa has struck a deal with ZTE to end sanctions. The ban also hurt American companies that supply ZTE.

According to Mr. Ross, speaking on CNBC, ZTE must change its management and its board, pay the fine, and put $400 million in escrow, which it will forfeit if it violates USA sanctions on North Korea and Iran. The U.S. Department of Commerce wishes to amend the settlement agreement so that the $361 million that the company had already paid would be included. Today, commerce secretary Wilbur Ross told CNBC that the U.S. struck a deal with ZTE to return it to business.

Senate Majority Leader Charles E. Schumer called for Congress to reverse the decision, which is unlikely.

"If the USA is truly going to make an example out of ZTE, the name itself is now toxic and can not be used going forward", Earl Lum, the President of EJL Wireless Research, a consultancy and research firm based in the United States, said when the ban came into force.

ZTE did not immediately respond to requests for comment. ZTE reached an agreement to turn over $1.19 billion and punish executives involved in the scheme, but in April the USA determined that the company hadn't lived up to its promises. It agreed to pay $890 million in fines, dismiss four employees, and discipline 35 others by either denying them their bonuses or reprimanding them.

US senators said they plan legislation to roll back the agreement.

"ZTE is essentially on probation", said Amanda DeBusk, chair of the global trade and government regulation practice at Dechert LLP and a former commerce official.

Mr. Trump appears to be using ZTE's punishment as a bargaining chip in negotiations with China, rather than a matter of law enforcement.

"We will closely monitor ZTE's behaviour", Ross said in a statement. But the president has repeatedly spoken of the enforcement matter as part of efforts to overhaul the USA commercial relationship with China. Building and maintaining a 5G network in the USA may create 3 million jobs and provide a $500 billion boost to GDP, according to a 2016 Accenture report.

US goods exported to China a year ago totalled $130 billion while Chinese imports to the USA totalled $506 billion.

The sanctions have prevented ZTE from receiving semiconductors and other components from suppliers including Qualcomm, Intel and Micron Technology, optical component suppliers Maynard, Acacia, Oclaro and Lumentum, as well as software suppliers Microsoft and Oracle, among others. Oclaro got 18% of its business from ZTE previous year, while 30% of Acacia's total revenue was from ZTE.

Like this: