ZTE Shares Jump As US Lifts Supplier Embargo

Shares in ZTE rose sharply as the US lifted its supplier ban on the Shenzhen-based telecoms equipment giant, paving the way for it to restart operations.

ZTE’s share price was up 17 percent by midday in Hong Kong and its Shenzhen shares rose their 10 percent daily limit after the US Commerce Department lifted the crippling ban on Friday.

The Chinese firm paved the way for the ban to be lifted after it paid a $1 billion (£750m) fine to the US Treasury and deposited another $400m into escrow with a US bank last month.

As required by its deal with the US presidential administration, the company also replaced its entire executive team from the senior vice presidential level upward, along with any executives associated with the wrongdoing that triggered the embargo.

Death sentence

In April the Commerce Department banned ZTE from buying any US components, effectively sentencing the company to bankruptcy, after saying it had violated US sanctions on selling equipment to North Korea and Iran.

The move wiped nearly $11bn from ZTE’s market valuation and forced the company to halt operations. Its shares are still trading 37 percent lower than before the blockade was announced.

Investors appeared optimistic in spite a Friday ZTE statement that it expects a net loss of up to 9bn RMB (£1bn) for the first half of 2018 due to the fine, compared to a profit of 2.29bn RMB for the same period last year.

Industry analysts said ZTE remains a major player in its field, but warned the company would face difficulties winning back customers and expanding its business.

IDC said ZTE would also find it challenging to reduce its dependence upon US suppliers such as Avnet, Qualcomm and Broadcom.

US opposition

Making the company’s fortunes more precarious is the fact that many US politicians oppose the deal, with the US Senate passing a defence bill last month that included an amendment aiming to reinstate the ZTE ban.

Opponents on Thursday called again for the blockade’s reintroduction, calling ZTE a national security threat that should be put out of business.

While some expect that amendment to be removed during the reconciliation process with the House of Representatives, analysts said nothing could be taken for granted.

US commerce secretary Wilbur Ross said on Friday the department would “remain vigilant” and would “closely monitor ZTE’s actions to ensure compliance with all US laws and regulations”.