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US ban on ZTE may affect global smartphone supply chain

Exposes China's reliance on American technology.
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US government's move to ban ZTE rom buying American technology may have far reaching consequences on the global telecommunications supply chain.

US government's move to ban ZTE rom buying American technology may have far reaching consequences on the global telecommunications supply chain.

The U.S. government's move last week to to stop the fourth largest smartphone vendor in the United States ZTE from buying American technology looks set to not only cripple the Chinese smartphone maker, but reverberate through the global telecommunications supply chain as well, Nikkei Asian Review reported.

According to Nikkei, the ban is a consequence of a March 2017 settlement between ZTE and the U.S. Commerce Department. ABI Research reveals that ZTE allegedly shipped telecom equipment to Iran and North Korea.

The U.S. action could be catastrophic for ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s devices. However, David McQueen, Research Director at ABI Research disagrees and said “The ban on Qualcomm chips is not great for ZTE‘s supply chain but since ZTE also uses MediaTek and Spreadtrum Communications chipsets in its smartphone portfolio, it may not be too problematic.”

“The most crucial aspect of the ban may be ZTE not being allowed to use Qualcomm, Qorvo, Skyworks, or Avago Technologies for front-end components as well as Google and therefore Android for the operating system,” McQueen added. “ZTE could start to use the Android Open Source Platform instead as some of its Chinese counterparts do already, namely OPPO, Vivo Communication Technology and Xiaomi. But this change will undoubtedly affect its ability to hold on to its U.S. market share, particularly on a platform that generally won’t support Google’s services,” McQueen warned.

Similarly, China's largest telecom equipment maker Huawei, also came under the US government radar due to security concerns and consequently two US carries, AT&T and Verizon exited distribution deals with Huawei. This was followed by the refusal of US electronics retail giant Best Buy to carry Huawei’s handsets.

American companies are estimated to provide 25 to 30 percent of the components used in ZTE’s devices.

American companies are estimated to provide 25 to 30 percent of the components used in ZTE’s devices.

The US government’s actions are aimed at the two Chinese phone makers, amid concerns among some in Washington that the Chinese government may use their equipment to spy on Americans. The two companies are known to be strong allies of the pro-north Korea ruling Communist Party.

Out of 1.46 billion total global smartphone shipments in 2017, ZTE alone shipped 42.8 million. “If the issue cannot be solved smoothly and immediately, we think that ZTE will face tremendous disaster and would be forced to scale back on its smartphone business, not only in the U.S., but also in other markets,” Strategy Analytics analyst Woody Oh told Reuters.

Nonetheless, the ban has inadvertently exposed China's reliance on American technology.