ZTE announces its major operating activities have ceased

The impact of the US denial order preventing ZTE from doing business with any US companies has been made brutally clear in a ZTE investor filing.

“As disclosed in the announcement of the Company dated 20 April 2018, BIS has issued an order for the activation of a denial order (the “Denial Order”),” said the filing. “As a result of the Denial Order, the major operating activities of the Company have ceased.

“As of now, the Company maintains sufficient cash and strictly adheres to its commercial obligations subject to compliance with laws and regulations. The Company and related parties are actively communicating with the relevant U.S. government departments in order to facilitate the modification or reversal of the Denial Order by the U.S. government and forge a positive outcome in the development of the matters.”

In other words, it’s all gone Pete Tong. Anecdotally we have heard multiple stories of ZTE withdrawing from a bunch of commercial activities and pretty much shutting up shop. It has already started pulling its phones from even Chinese stores as a continued trading relationship with Mediatek is insufficient to compensate for the loss of Qualcomm as a chip provider.

Without second-guessing the rationale behind the BIS decision, ZTE seems to also be right in the middle of the escalating trade war between the US and China along with, funnily enough, Qualcomm. There may or may not be some horse trading between their respective regulators or China may instead retaliate by banning a US company from doing business in China. This could get tasty.