ZTE Banned From Using Hardware & Software from US Companies for 7 Years

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Acacia Communications Inc, which earned 30 per cent of its total 2017 revenue from ZTE, tumbled as much as 34.7 per cent in early trade, hitting a almost two-year low. Inphi (IPHI) sank 12% to 28.75, Lumentum Holding (LITE) plunged almost 10% to around 58, Finisar (FNSR) fell more than 5% to 15.40, and NeoPhotonics (NPTN) dropped 4% to 6.50.

Acacia shares have gone down more than 30%, while Oclaro shares have only gone down approximately 15%. Both Huawei and ZTE were part of a 2012 ban against their telecom equipment, although the House Intelligence Committee said that phones weren't part of decision. A William Blair report, however, puts Lumentum's sales to ZTE in a range of 5%-10%, with Oclaro at 17.5% of 2017 revenue.

The action comes amid mounting pressure on Chinese telecommunications companies and a broader escalation of tariffs from both the United States and China.

ZTE swung back into a profit last year after a loss in 2016 due to a payment of a record fine, which the company agreed to pay the U.S. government to settle a five-year probe of trade sanctions violations.

The ban targeting ZTE comes as the USA considers tariffs on up to $150 billion in Chinese imports as President Donald Trump tackles what he has said are unfair trade practices by Beijing.

The surprise move came after the DoC revealed that ZTE had violated the terms of the settlement it had signed in March 2017. In response, the Department of Commerce instituted a full ban on any US exports to ZTE specifically for the next seven years.

The ZTE action comes amid rising trade tensions between the USA and China, which could be affect Qualcomm beyond ZTE. ZTE is the second biggest Chinese maker of telecom gear behind Huawei. (NYSE:S), and "has relied on USA companies including Qualcomm Inc, Microsoft Corp and Intel Corp for components", according to Reuters. ZTE instead agreed to plead guilty, pay $890 million in penalties (with an additional $300 million penalty possible), and fire four senior employees. "This egregious behavior can not be ignored", Secretary Ross said.

While ZTE can still sell its smartphones in the United States, the company's market share in the unlocked segment is very small.

Denial Orders are issued by the Assistant Secretary for Export Enforcement of the Bureau of Industry and Security, denying the export privileges of a company or individual.

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