Last week the US government moved the ban ZTE from buying American technology would not only cripple the Chinese smartphone maker, but it would affect the entire global telecommunication supply chain.
The ban would stop ZTE from exchanging technology with vital partners like Qualcomm, Intel & Broadcom. Chinese media are reporting that even though the company’s parts inventory should last another month, production has already slowed to a near standstill.
With production suddenly coming to a halt and many suppliers are left holding stock destined for ZTE.
Many US companies have started to disclose what the US ban will cost them. ZTE accounted for 3% of NeoPhotonics revenue last year and expected 2018 to increase to 5%. At $25 a chipset, Qualcomm is taking a huge hit as IHS estimates that they sold around 46M phones last year, half of which were sporting Qualcomm.
There a few companies that could step up to fill this void. Japanese vendors such as NEL could supply coherent DSPs; HiSilicon, a subsidiary of Huawei, also makes such devices but may not want to supply them to a competitor of its parent company. Meanwhile, while Chinese and Japanese optical module vendors could offer 100 Gigabit Ethernet modules, many if not all of them leverage U.S.-sourced components that could be subject to the ban.
The ban stems from a March 2017 settlement between ZTE and the US commerce department. ZTE was found to have violated US sanctions between 2010-2016 by shipping telecommunication equipment to Iran and North Korea. They were found guilty of hiding these transactions through the use of a shell company.
ZTE acknowledged the wrongdoing an is paying $1.9Billion in fines and a suspended denial of export privilege. The ban is currently 7 years.
“I don’t think there is anywhere they can go for critical components,” wrote Andrew Schmitt, founder and lead analyst at Cignal AI, in an article over at Lightwave. “The only other suppliers for some of the devices are in Japan and it isn’t clear at this point what direction they will take with ZTE. Even then, there are components like WSS modules and tunable lasers that have no non-U.S. sources. The situation is the same for other businesses – control plane processors, software, FPGAs, Qualcomm chips for mobile phones. The Dept. of Commerce effectively signed a death warrant for ZTE.”