China’s ZTE consumer electronics company says the fact that the United States blocks exports of key components for its smartphones could bring it to its knees.
It is an outrageous claim, but that does not mean it is wrong.
In a press release about its battle with the U.S. Department of Commerce’s Bureau of Industry and Security, ZTE management said:
The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies.
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The Denial Order blocks American firms from selling to ZTE the products and software it needs to build its smartphones. Among other sins, at least in the view of the U.S. government, ZTE tried to get its products into Iran and North Korea. It then lied about its plans, according to an investigation.
Like many consumer electronics companies, ZTE does not make all the parts of its products. Its primary products are smartphones, wearables and tablets. It has tried to build its presence in the United States via things like a PGA sponsorship. An improved image, however, will not get it the U.S. exports its needs.
According to a teardown of the new ZTE Axon M dual-screen smartphone:
On the surface, the Axon M is a fairly run-of-the-mill Android smartphone. Its front screen is a 5.2-inch, 1080p panel, it has last year’s Qualcomm Snapdragon 821 processor, 4GB of RAM, and a 20-megapixel camera.
U.S.-based Qualcomm (NASDAQ: QCOM) is one of the largest smartphone chip companies in the world, so the ZTE warning about its future may be true. Ironically, an attempt by Singapore-based Broadcom Inc. (NASDAQ: AVGO) to buy Qualcomm was nixed by the U.S. government because of Broadcom’s business relationships with China, among other things.
Will ZTE be a victim of the heightened tension between the United States and China? According to its management, yes.
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