ZTE ceases "major operating activities," may be on the way out

This may be the end of ZTE. The Chinese smartphone manufacturer has been hit hard by the U.S. Department of Commerce (Doc), which banned American companies from selling components to ZTE last month. Earlier today, the company issued a statement to its stockholders announcing that the company was essentially stopping operation as it contests the ruling of the United States government. 

In the statement, ZTE explicitly says that all “major operating activities of the Company have ceased” because of the U.S. DoC’s ban. ZTE stated that the company has enough cash on hand to fulfill its current “commercial obligations” and that it is “actively communicating” with the United States in hopes of reversing the denial order.

Last month, the U.S. DoC activated a full ban on selling anything to ZTE that applied to any U.S. company. The DoC activated the ban in order to punish ZTE for failing to meet the requirements of a settlement reached last year. ZTE was found guilty of selling goods to Iran North Korea, both countries that are heavily embargoed by the U.S. 

This ban includes Qualcomm, arguably the largest smartphone CPU manufacturer in the world. Qualcomm has been supplying the silicon used in ZTE’s flagship phones for years, but this ban has killed any future sales. The ban is set to last 7 years, but ZTE has feverishly contested the ruling, claiming that the ban would irreversibly damage the brand. Today’s announcement gives quite a bit of credence to that statement; it looks like the ban could possibly be a deathblow for ZTE. The company was already struggling to secure a meaningful foothold in Western markets, but the DoC’s ban has effectively quashed any dreams of strong U.S. sales, at least for the time being. 

ZTE may be suspending major activities to throw their full weight behind their argument against the U.S. government. That’s unlikely, though; a company would have to be very foolish to stop all operations to pursue legal action against a single ruling in a single market. Of course, a company would also have to pretty foolish to reward executives that flaunted a United States embargo rather than cutting their pay or firing them altogether.