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Implications of ZTE’s last-minute reprieve

Implications of ZTE’s last-minute reprieve

Update to my blog on ZTE of 24 April.

 

So, it’s official:  the U-turn on ZTE is complete.

The US government has decided to remove the export ban on the company. In return, under a new deal, ZTE will install a new board within 30 days, pay a $1bn fine with an additional $400m in escrow, and agree to a further 10-year US export ban ifthere are any future violations. A US Commerce department compliance team will also need to be retained by ZTE. 

Selfishly for us at Intralink, this is great news for us and our clients in the short-term. 

We can finally restart negotiations and business development work with ZTE for our clients, after being stalled for the past couple months. Also, the potential of having new, younger board members should give ZTE some fresh thinking. Anyone who has dealt with both ZTE and Huawei will tell you which is the most professional and organised. In the long-term, though, I think maybe the damage from a western perspective is already done.

In China, the ZTE debacle has acted as a wake-up call and, despite this U-turn, the saga has only accelerated the already-fast pace at which China is looking to become as self-sufficient as possible. 

This could be problematic for companies looking to license technology into China. There’s always been a culture of developing technology in-house and using open source wherever possible at Chinese tech companies. Buying in technology, especially from abroad, is usually a last resort - unless, of course, your technology is truly world beating, monopolistic or essential. 

There are certain industries, semiconductors being one, where Chinese companies have no choice but to purchase from abroad, be it EDA tools or processor architecture. But I predict this industry will only become more difficult for foreign companies to target from afar in the medium to long-term: a local presence will become even more essential.

As we know, Arm have dealt with this by creating a localised JV, with SoftBank recently selling off its stake for a surprisingly small amount – a move which the EU isn’t too happy about.

In the coming months, I expect we’ll see ZTE re-engaging its suppliers in the US and perhaps even offering cut-prices to its large carrier partners to regain its footing. 

Right now, this means ZTE is open for business again. But they and other Chinese companies will be looking hard at how they can avoid being so reliant on the whims of a foreign government. They can’t risk this happening again.

About the Author

Stewart Randall

Based in Shanghai, Stewart Randall is the Global Lead of Intralink’s Electronics & Embedded Software group.

He helps clients across the mobile comms, consumer electronics and semiconductor sectors expand in Asian markets by developing sales strategies, securing partnerships and brokering licensing deals.

To discuss whether Intralink could help your business in China or the Asian electronics sector, contact Stewart on stewart.randall@intralinkgroup.com.

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