Ban on Selling to ZTE is Big Blow to Qualcomm

The decision made by the U.S. to ban American businesses from selling components to ZTE Corp the China-based telecom equipment maker will hit a big target located at home as Qualcomm, a U.S. based company is one of ZTE Corp’s biggest suppliers for chips used in ZTE’s smartphones.

The U.S. Commerce Department placed a ban of seven years on Monday for sales to ZTE for its breaking of terms of an agreement that was reached in 2017 after it had been caught illegally shipping products to Iran.

Qualcomm has been caught up in the battle between ZTE and the U.S. government. Qualcomm products are inside the majority of ZTE smartphones. ZTE shipped 46.4 million smartphones during 2017 according to data supplied by IHS Markit.

It is estimated that Qualcomm supplies over half of the chips inside the ZTE smartphones. If there were 45 million handsets shipped and the price for each chip set is $25 in then revenue that would be affected is nearly half a billion dollars.

A technology consulting firm, Canalys, estimates that a larger number of ZTE phones or over 65% have Qualcomm chips.

Loss of that business may be just the beginning for the Qualcomm. The company has annual sales of $22 billion with the U.S. and Beijing battling over tariffs as well as trade barriers, Qualcomm could become one of the companies caught up in retaliation.

China wants to give a boost to its domestic tech giants such as Huawei which makes chips as well. The U.S., at the same time, is concerned about the growing might of China, and has shot down technology deals China has made overseas, citing concerns for national security.

Qualcomm, which has most of its sales in China, is now in a very awkward position. One market analyst said that domestically that are competitive attitudes and for Huawei a company like Qualcomm is an enemy, but for many smaller phone makers in China they are dependent upon Qualcomm.

Qualcomm, which has defense and government contracts in Washington, is tied closely to the U.S. government, but is also battling to receive regulatory approval within China for a takeover worth $44 billion of NXP Semiconductors.

In the end, Qualcomm may be hit by the issues with ZTE more in the U.S. than it will be in China.

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