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Apr 20, 2018

Chinese tech firm ZTE says U.S. ban threatens its survival

ZTE headquarters Shenzhen China

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BEIJING — ZTE Corp., one of China's biggest tech companies, warned Friday that a ban on access to U.S. technology threatens the company's survival and said it is looking for a legal solution.

Washington imposed the ban Monday in a case involving exports of telecoms equipment to Iran and North Korea. U.S. companies are barred from selling technology to state-owned ZTE for seven years.

That could handicap ZTE's smartphone business, which uses Google's (GOOGL.O) Android system, and crimp a multibillion-dollar revenue flow to companies such as Qualcomm Inc. (QCOM.O) that supply chips, software and other technology.

ZTE pleaded guilty in March 2017 and agreed to pay a US$1.19-billion penalty for shipping equipment to Iran and North Korea in violation of U.S. regulations. The company promised to discipline employees involved in the scheme, but the U.S. Commerce Department said this week they were paid bonuses instead.

A ZTE statement complained U.S. authorities imposed "the most severe action" without waiting for an investigation and corrective measures to be completed.

The penalty "not only threatens ZTE's existence but also harms the interests of ZTE's business partners, including a large number of U.S. companies," said the statement.

"ZTE will not give up its efforts to solve problems through communication and dialogue. It is determined to safeguard its legitimate rights and interests through all legally permitted means," the company said.

The statement gave no indication what legal steps ZTE might take.

ZTE is, along with telecoms rival Huawei Technology Ltd. and computer maker Lenovo Group (LNVGY.PK), among the first Chinese companies to compete in global technology markets.

The company, headquartered in the southern city of Shenzhen, operates in 160 countries and sells switching gear used by phone and Internet companies, handsets and other products.

The company reported 2017 global revenue of 108.8 billion yuan (US$17.3 billion).

ZTE and Huawei have been shut out of the U.S. market for switching gear since a congressional panel in 2012 labelled them security threats.

The company can keep using Android, for which Google charges no fee, but might lose access to applications such as Google Maps, Gmail and Youtube, according to according to IDC analyst Kiranjeet Kaur.

"If ZTE cannot have these Google applications, ZTE phones will be a lot less attractive," said Kaur.

Its smartphones also have "high dependence" on Qualcomm application processors, according to Kaur.

Qualcomm didn't immediately respond to an email seeking comment. Intel Corp., another chip supplier, declined to comment.