China's ZTE may lose Android license as USA market woes build

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Following the decision by USA regulators to impose a seven year ban on exports to ZTE, the phone maker has been uncovered a potential major problem.

The results were previously scheduled for Thursday. The Shenzhen-headquartered telecom equipment maker will face a seven year ban on the use of American parts for its hardware. The action followed ZTE's violation of an agreement reached after it was caught illegally shipping USA goods to Iran. Commerce found that those activities involved "an elaborate scheme to hide the unlicensed transactions from the U.S. Government, by deleting, destroying, removing, or sanitizing materials and information". Trading in its shares has been suspended in China since Tuesday. Today, according to Reuters, a source familiar with discussions between Google's parent company Alphabet and ZTE says the two are still very much undecided on whether the Chinese smartphone maker will be able to continue using the Android operating system. Alphabet and ZTE are now in discussions to determine what course of action is possible if Google is legally prevented from licensing its software.

ZTE shipped 46.4 million smartphones previous year, placing it seventh among Android-based manufacturers, according to research firm IHS Markit. However, it could be that this ruling affects ZTE's deals with Google, specifically in the use of Google Play Services.

ZTE has not responded to requests to describe how it intends to respond to the ban, which a senior U.S. Commerce official told Reuters is unlikely to be lifted. "While Datang Telecom has decent technology, they remain a distant third to ZTE in [research and development] and revenues, so how quickly can they speed up 5G development is unknown", Lum said.

The ban could be catastrophic for ZTE, the fourth-largest smartphone vendor in the United States, as it is estimated to rely on USA firms for almost a third of crucial components such as chips in its products.

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ZTE, which has chips from U.S. firm Qualcomm in an estimated 50-65 percent of its phones, is now facing a struggle to save its smartphone business as it looks to find new supplies.

Washington's limit on ZTE buying American-made parts is likely to severely curtail the production of its new smartphone models, as it uses Qualcomm chips in its devices.

It could mean the end of ZTE's smartphone business outside of China entirely.

The moves threaten to further complicate relations between the United States and China.

The analyst also said that a potential deal with the U.S authorities could cost ZTE almost $1 billion and would likely include audits by the U.S government.