ZTE Corp (中興通訊) is estimating losses of at least 20 billion yuan (US$3.1 billion) from a US technology ban that has halted major operations as clients pull out of deals and expenses mount, people familiar with the matter said.
However, the telecoms gear and smartphone maker is hopeful of striking a deal soon and already has a plan in place — dubbed “T0” — to swing idled factories into action within hours once Washington agrees to lift its seven-year moratorium on purchases of US chips and components, said the people, who asked not to be identified talking about private negotiations.
Shenzhen, China-based ZTE depends on US components, such as chips from Qualcomm Inc, to build its smartphones and networking gear.
The ban, for breaching terms of a settlement over sanction-breaking sales to Iran, has all but mothballed China’s second-largest telecoms gear maker and become entangled in a trade dispute between the world’s two largest economies.
US President Donald Trump on Tuesday said he was reconsidering US penalties as a favor to Chinese President Xi Jinping (習近平) and might instead fine the company more than US$1 billion.
“The president [Xi] asked me to look into that and I am doing it,” Trump told reporters at the White House.
“When I looked at it I said, you know, they could pay a big price without necessarily damaging all of these American companies, which they are because you know you’re talking about tremendous amounts of money and jobs,” he said. “By shutting them down, we’re hurting a lot of American companies, really good American companies.”
Asked about the company, he said there is no deal yet with China — but it was not clear whether he was speaking specifically about ZTE or about broader trade disputes.
However, Trump faces intensifying opposition in the US Congress to any retreat from the ZTE penalties.
Fourteen Republican senators joined 13 Democratic and independent senators and wrote a public letter to Trump on Tuesday urging him not to soften the company’s punishment for “serial and pre-meditated” violations of US sanctions against Iran and North Korea.
The US action has spooked potential clients during the crucial first-half IT spending season and even prompted some to renege on agreed deals, the people said.
ZTE is shelling out an estimated 80 million to 100 million yuan in daily operational expenses alone while most of its 75,000 employees sit idle, the people said.
However, it is hopeful of ramping up swiftly once a settlement is reached: Thousands of workers biding their time in the company’s dormitories stand ready to flood its factories once a green light is given, the people said.
It is unclear what ZTE can do to prompt a reprieve, though it is expected to reshuffle executives and possibly its board.
However, Chinese government officials are undertaking negotiations on behalf of ZTE, and the company, which does not have much influence in the process, would have to accept the terms of any settlement reached between Beijing and Washington.
ZTE first ran into trouble in 2016 for violating laws restricting the sale of US technology to Iran.
An agreement last year called for the company to pay as much as US$1.2 billion and penalize the workers involved, in what was the largest criminal fine for the US Department of Justice in an export control or sanctions case.
However, the US Department of Commerce last month said ZTE instead paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to US authorities.
That triggered the seven-year suspension, and its shares have been suspended from trade in Shenzhen and Hong Kong since.
Tensions could easily escalate. There have been concerns the US would impose a ZTE-like ban on China’s largest mobile and telecommunications company, Huawei Technologies Co (華為).
Bloomberg News last month reported that the US is conducting a broad investigation into whether Huawei violated sanctions against trading with Iran, similar to the allegations against ZTE.
The moratorium on ZTE threatens a swathe of components needed to hawk gear to clients suchas China Mobile Ltd (中國移動) and Europe’s Telefonica SA.
It relies on suppliers from chipmakers Qualcomm and Micron Technology Inc to optical developers and Acacia Communications Inc.
The ban might also stop the company from using Google’s Android operating system, the heart of its smartphones.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to