National security warning for British firms dealing with Chinese telecoms giant ZTE

Optical Stocks Under Pressure After US Bans Sales To ZTE

ZTE has been hit by a seven-year US sales ban in punishment, according to the US Department of Commerce, for breaking the terms of a settlement over sanctions busting.

The commerce Department also reported that the employees who were involved in the above mentioned illegal act were paid full bonuses by the company ZTE corp. even failed to issue letters of reprimand for those employees and also lied about the practices to US authorities. On top of the $892M monetary penalty, the settlement agreement put ZTE on "probation", with the company agreeing to forfeit their export privileges for seven years and paying the remaining $300M of the original $1.19B fine in case of a breach or further misconduct.

The move, first reported by Reuters, comes at a time when the two countries have threatened each other with tens of billions of dollars in tariffs in recent weeks, fanning worries of a full blown trade war that threatens global supply chains as well as business investment plans.

The company "covered up the fact that ZTE paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand", the US Department of Commerce said. As part of the agreement, ZTE said it would dismiss four members of senior staff to discipline 35 more.

Trading in ZTE shares was suspended in Hong Kong.

The Chinese company paid $890 million in fines and penalties after it pleaded guilty past year to conspiring to violate US sanctions by illegally shipping USA goods to Iran.

The company has set up a crisis management group in response to the ban, said a ZTE source, declining to be identified as the information was confidential.

Yesterday, the Chinese firm was also blacklisted by the UK's National Cyber Security Centre (NCSC).

In conclusion, the measures taken by the U.S. government against the Chinese manufacturer will also reflect on the latter's smartphones production and their quality, subsequently, since now ZTE can't buy Qualcomm chipsets anymore, while, until now, up to 30% of the components used by ZTE were made by United States companies.

The action of the ban imposed by the USA on the ZTE corp. means that one of the world's top manufacturers of smart phones and communication gear will not be able to buy technology from American Supplies. Oclaro generates about between 10% and 15% of revenue from both Huawei and ZTE and gets another 10% from Nokia.

The U.K.'s national Cyber Security Centre warns the telecommunication companies of the country that, "National risks from ZTE equipment and services can not be mitigated".

Other optical component companies also slid, with Lumentum Holdings Inc falling 8.9 percent and Finisar Corp dropping 4 percent. The technology bought by the company includes components central to its products.

ZTE has sold handset devices to USA mobile carriers AT&T Inc, T-Mobile US Inc and Sprint Corp.

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