While the financial penalties were no doubt significant, the Department of Commerce has an even stiffer penalty for the company that was announced today (terms of which ZTE agreed to comply with as part of the original plea agreement). American companies like Qualcomm will now be unable to export components to ZTE for a period of up to seven years.
The Department of Commerce alleges that the ZTE didn’t comply with the terms of its probationary period, and failed to take disciplinary action against senior leadership that was involved in the original transgressions. ZTE also lied about its failure to censure its employees. To make matters worse, the company actually gave bonuses to these executives instead of firing or censuring them.
“ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored,” said Secretary of Commerce Wilbur L. Ross.
Given that ZTE did not fully comply with its plea deal, the original seven-year ban is now in full effect.
ZTE provides budget smartphone to all four major wireless carriers: Verizon Wireless, AT&T, T-Mobile and Sprint. The ZTE Axon M, for example, is an outlandish Android smartphone with dual, folding 5.2-inch 1080p displays. The device is powered by a Qualcomm Snapdragon 821 processor and is available on AT&T’s network. In fact, most of ZTE’s smartphones sold in the U.S. use Qualcomm processors and baseband chips in order to support our wireless bands.
The penalties handed down by the Department of Commerce could be devastating to ZTE’s U.S. operations, and could sting suppliers like Qualcomm and Intel to a lesser extent. ZTE’s misfortunes happen at a time when Chinese rival Huawei has also been effectively pushed out the U.S. market by the government.