Industry Voices—Schoolar: Sorting through the winners and losers of ZTE’s ban and subsequent return

Daryl Schoolar Ovum

After nearly three months of being a corporate zombie, the U.S. government agreed to lift its ban on ZTE’s purchase of U.S. technology components. While in place, the ban effectively ended ZTE’s operations. The company essentially ceased functioning. With the ban lifted, ZTE is now trying to regain its market position and assure its customers that they can put their trust in ZTE as a network partner.

The company has already said it was ramping up its operations in Italy, a market where it saw a competitor profit at its expense while on forced hiatus.

What happened to ZTE has been eye-opening in terms of how removing just one part of the supply chain can cripple a vendor. It also shows how interconnected different companies are within the industry, as ZTE wasn’t the only company negatively impacted by the ban. ZTE’s U.S. suppliers were obviously hurt. ZTE’s customers couldn’t have been too pleased with the uncertainty surrounding ZTE either, and that was bound to have some impact on those operators’ plans.

Even companies not directly linked to ZTE have been impacted to some degree by ZTE’s ban and subsequent reinstatement. The following is my list of winners and losers coming out of the whole ZTE situation as it pertains mainly to mobile infrastructure.

Winner: ZTE was able to survive the components ban and has been able to resume operations. This turnaround was not a given. Even after the executive branch said it wanted to save ZTE, the U.S. Congress resisted. Merely still being in business and able to pursue new deals makes ZTE a winner.

Loser: ZTE’s return makes it a winner, but the company also clearly didn’t escape this undamaged. The company has already restated its first-quarter financials to show a $790 million loss and says it expects to post a loss of around $1 billion to $1.3 billion for the first six months of 2018. Adding to financial stress, the company paid the U.S. government a $1 billion fine and put $400 million in escrow. Part of the reinstatement deal included removal of senior leadership as well. No word yet on how this could impact ZTE’s funding for R&D and other key operations. The vendor’s reputation didn’t escape undamaged either. Operators could be hesitant to work with ZTE going forward out of concerns over this happening again. The U.S. ban showed just how quickly operators can lose a key partner and how little control operators have over the situation.

Winner: Operators looking for price leverage over their suppliers. ZTE’s return certainly helps in keeping price pressure on other the vendors. Sure, a mobile operator might be worried about ZTE’s future, but the operator doesn’t need to share that with the companies bidding on the contract.

Loser: Ericsson and Nokia are obvious losers from ZTE’s return. Both companies were in prime position to gain market share at ZTE’s expense. In fact, Ericsson had already picked up some business coming from the ban with Wind Tre in Italy. ZTE’s return makes that more difficult. 

Winner: ZTE’s U.S. suppliers are big winners with the return of the vendor. ZTE is an important global client, and the loss of ZTE’s business even for a quarter came with a financial impact. The return of ZTE should mean stronger financials for ZTE’s suppliers.

Loser: ZTE’s ban didn’t do Huawei any favors. Huawei has long dealt with rumors and accusations over the security of its network solutions. Like ZTE, Huawei can’t sell gear to the major U.S. network operators. ZTE’s situation with the U.S. government also seems to have brought increased negative attention to Huawei. There have been articles in the U.S. press about the government looking into Huawei’s activities in Iran. Reports out of the U.K. and Australia this summer say there is some government concern over the use of Huawei’s network gear. While Huawei’s problems aren’t all the same as ZTE’s, Huawei can’t fully escape being lumped in with ZTE.

ZTE’s U.S. supplier ban has been a major factor in the 2018 telecoms market. Its impact has been felt well beyond just ZTE. Operators, competitors and suppliers have all been impacted by it. Even with the ban lifted, it will take time before everything can return to its prior status.

Daryl Schoolar is principal analyst of wireless infrastructure for Ovum. His research includes not only what infrastructure vendors are developing in those areas, but how mobile operators are deploying and using those wireless networking solutions. Contact him at [email protected] and follow him at @DHSchoolar.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.