The U.S. government’s ban that prevented ZTE from buying parts from U.S. vendors and corresponding fines had a crippling effect on the Chinese vendor’s first quarter earnings. The ban has since been lifted but caused ZTE to cut $1 billion from its bottom line.
ZTE says it lost $792 million in the first quarter as opposed to the $249 million profit it initially reported. That swing was attributed to the operational impact of not having access to U.S. components and $1.4 billion in total fines ZTE agreed to pay to the U.S. government to lift the ban on purchasing critical components necessary for its telecommunications equipment.
The vendor also downgraded its initial first quarter revenues from $4.2 billion to $4 billion and increased its operating costs from $2.8 billion to $2.9 billion for the quarter. The vendor earlier this month reported that it expects first-half profits to plunge from $338 million posted last year to a loss of between $1 billion and $1.3 billion this year.
ZTE early last year was slapped with $900 million in fines by the U.S. government after it was found to have sold equipment to Iran and North Korea that used components from U.S. companies in violation of a long-standing trade ban.
That initial agreement also included a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met. That provision was activated this past April after the U.S. found the vendor had lied about taking action against company officials that were tied to the initial violations.
Shortly after the ban, ZTE said it had stopped all “major operating activities” in its Shenzhen, China, factory.
However, President Donald Trump last month announced the government was working on a deal to allow ZTE to regain access to U.S. components if it paid a fine and agreed to change its management board. That change was initiated during ZTE’s annual general meeting and was ratified last week.
The company named Li Zixue as its new chairman and as an executive director of the board of directors. And it named seven other new board members: Gu Junying, Li Buqing, Zhu Weimin, Fang Rong, Cai Manli, Yuming Bao, and Gordon Ng.
The ZTE situation ended up not having a positive impact on Qualcomm’s attempts to acquire Dutch-based chip vendor NXP. Reports had tied solving the ZTE situation to Qualcomm gaining approval from China to complete the long-pending acquisition attempt.
However, Qualcomm last week officially announced it had nixed the $44 billion deal after it did not gain China’s approval by the self-imposed July 25 deadline. As part of the move, Qualcomm will pay a $2 billion break-up fee to NXP and said it plans to spend up to $30 billion in a share buyback program to placate shareholders.