The ban's devastating impact owes to ZTE's reliance on U.S. partners for crucial technology. American businesses supply roughly 30% of the parts in ZTE smartphones, and the Chinese company sources the bulk of its processors from American chipmakers such as Intel and Qualcomm.
Software is another issue. The vast majority of smartphones run one of two operating systems: Apple's proprietary iOS or Google's Android. ZTE handsets use the latter, but the seven-year ban threatens to cut off access to the operating system.
The restrictions are also likely to throw a wrench in ZTE's plans for fifth-generation wireless technology, anticipated to be a growth driver. The company had just announced in late February partnerships in this area with Intel and Qualcomm.
The trade tensions between Washington and Beijing are poised to hit Huawei Technologies, China's largest telecom equipment maker, as well. The U.S. Federal Communications Commission said April 17 it plans to bar the use of money from its Universal Service Fund for purchasing gear from companies that pose a security threat. The fund subsidizes telecom service to underserved areas.
The measure seems aimed at Huawei and ZTE, amid concerns among some in Washington that the Chinese government may use their equipment to spy on Americans. The two companies are perceived to have particularly close ties to the ruling Communist Party. U.S. lawmakers raised the alarm about Huawei and ZTE back in 2012, calling for both to be barred from doing business with the government.
