Why ZTE is so important to China’s tech industry
A crippling ban. A desperate message from the chairman. And now an apparent reprieve by the President of the United States.
It’s been a rollercoaster ride for ZTE over the last month, when the US government punished the company for making false statements during an investigation into illegal sales to Iran.
ZTE was banned from buying hardware, software and other components from American suppliers for seven years -- a tough sentence for a company that Reuters says sources up to 30% of its components from the US. The company later said it would effectively stop operating.
Then, a Sunday surprise: A tweet from President Trump.
OK, Trump tweeting is not a surprise. But the content of the tweet certainly was:
ZTE’s survival would save jobs: The company employs 75,000 people. But it goes beyond that, because China has many tech giants -- but ZTE is one of the few Chinese tech companies to be truly global.
It’s the fourth biggest smartphone maker in the US, behind only Apple, Samsung and LG. At a time when other Chinese smartphone makers are trying just to enter the country, ZTE is already there -- and thriving.
ZTE’s strength in the US is at the lower end of the market, selling cheaper handsets in the US. It’s trying to reach the higher end with some wild concepts and even wilder products like the dual-screen Axon M -- but our review found that phone didn't quite justify its defining feature.
Still, the bulk of ZTE’s business isn’t in handsets, but the infrastructure around them. Its customers in the past included carriers like Vodafone, Deutsche Telekom, Softbank and Telefonica. Forbes says its networking equipment is widely used by carriers across Africa.
And as China tries to become a global leader in 5G, ZTE is one of the companies leading the charge. The South China Morning Post reports that the ZTE and Huawei, along with Chinese officials, are working to give the country more say in defining standards for 5G.
But it’s what’s to come that may have a bigger impact.
Ben Thompson writes on Stratechery that he believes this will lead to a widening split between Chinese technology and Western technology -- something signalled by President Xi Jinping, who spoke of the need for China to develop its own core technology.
Despite the growth in China’s tech industry, the ZTE ban highlights how reliant it remains on hardware and software from the US. The company’s smartphones have CPUs from Qualcomm and run Google’s version of Android -- vital in the West, where services like Google Maps and the Google Play Store virtually define the mobile experience.
One analyst told the New York Times that China will be focused on finding home-grown replacements for all of those American components.
“In the long run, strategically, this might be worse for the U.S. than the current situation,” analyst Chris Lane at Sanford C. Bernstein told the newspaper.