Following the decision from the US government to activate the Suspended Denial Order, ZTE has hit back with the threat of a lawsuit, claiming the order not only threatens its own survival but that of its suppliers.
While the order might have had the objective of knee-capping a specific Chinese company, the fallout has also sent shockwaves through the US technology scene. Companies like Acacia Communications, Oclaro and Lumentum Holdings, all of whom are US companies reliant on ZTE as a major customer, have seen share prices plunge. The US government might have hit bullseye when it comes to tackling ZTE, but the friendly-fire has been spraying all over the country.
“The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of US companies,” ZTE said in a statement. “In any case, ZTE will not give up its efforts to resolve the issue through communication, and we are also determined, if necessary, to take judicial measures to protect the legal rights and interests of our Company, our employees and our shareholders, and to fulfil obligations and take responsibilities to our global customers, end-users, partners and suppliers.”
It is difficult to get a handle of the damage which has been done at ZTE primarily because there are so many moving parts and a huge number of possible scenarios. The loss of customers in the US is only the tip of the iceberg, ZTE is huge reliant on US technology and intellectual property. Some estimates say 80-90% of ZTE technology is reliant on some form of US input, while Qualcomm supplies around 70% of the chips used in its smartphones.
This is devastating for ZTE. Who knows how long recrafting the supply chain to make sure there are no US components involved would take. It is a task which has probably never been undertaken before.
That said, the lobbyists in Washington must be hammering the front door of the White House. Anti-China sentiment has been a long-standing tradition of US governments, but this order takes the stakes up who-knows how many levels. In trying to cripple a Chinese beast, the White House has possible resigned hundreds, if not thousands, of employees to the dole queue within its own borders. Acacia Communications, Oclaro and Lumentum Holdings are the three companies who have been hit hardest, but there will of course be dozens of firms who are less reliant on the firm, though the order will still have a material impact on the business. ZTE is after all one of the world’s largest telecommunications vendors.
Legal action will potentially follow, though ZTE might be able to negotiate its way out. Judicial action does not necessarily mean lawsuit, there will be steps to take before this point is reached, including an appeal. Before too long, assume the Chinese government will wade into the mediation mess, while ZTE will be calling on its US suppliers for backup as well. That said, don’t expect the US to have a sympathetic ear. The US government is going to try and make an example of ZTE as it flexes its muscles over China