After Huawei, Chinese company ZTE has become the latest victim of the US government’s ongoing crackdown on Chinese electronics companies. On Monday, the US Commerce Department banned all American companies from selling hardware and software to the Chinese electronics company for seven years. The announcement could mean that ZTE will lose out on its licensing agreeement for Android from Google.
Reuters reports that the new announcement from the Commerce Department could preclude Google from licensing Android operating system to ZTE. The report adds that Google parent Alphabet and ZTE are discussing the ban but no decision has been reached yet. The ban might not be effective considering the fact that Android is an open source platform and Google is only developing the ecosystem with its own software.
The report does not specify what Android software Google is barred from selling to ZTE. If the Commerce Department does indeed ban Google from allowing ZTE to license Android, the Chinese company will be forced to create a modified operating system using the Android Open Source Project (AOSP). There is a high likelihood that Commerce Department will limit Google from selling its own software and services including the Google Play Store to these Chinese companies.
“ZTE is aware of the denial order activated by the United States Department of Commerce,” the company said in a Tuesday statement. “At present, the company is assessing the full range of potential implications that this event has on the company and is communicating with relevant parties proactively in order to respond accordingly.”
ZTE is the only Chinese smartphone maker with some kind of presence in the United States. Early this year, China’s Huawei, the third largest smartphone maker globally, tried to enter the US but telecom operators backed out from a deal at the last moment. Huawei was forced to sell its flagship smartphones at unlocked prices through online retail channels which significantly affects its ability to sell devices in the US.
The ban announced by Commerce Department on Monday will restrict US companies like Qualcomm and Dolby from selling their components and intellectual property (IP) to ZTE for its phones. ZTE pleaded guilty to illegally shipping US equipment to Iran and North Korea in March 2017 and it agreed to pay up to $1.2 billion in penalties. The settlement included a clause where ZTE was directed to take actions against employees who took part in illegal activity.
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The Commerce Department stated on Monday that ZTE officials lied about taking actions against these employees and even gave full bonuses to some of them. The ban will be a big blow for ZTE, which is estimated to have shipped over 45 million smartphones in the last year. It will also be a blow to Qualcomm, which stands to lose out on a major customer.
The US government is engaged in a bitter trade war with China and the Trump administration has frequently stated that China steals IP from American technology companies. The announcement can also be seen as a way to further limit the reach of Chinese telecommunications companies, which have a strong position with US telecom companies. The US government has directed consumers and authorities against using phones made by these Chinese companies and has claimed that they impose security risks including espionage. While Chinese companies dismiss those claims as baseless, it is now evident that this trade war will only escalate in the coming days.