US component makers banned from selling to ZTE

ZTE. Not a household name in the US. Still, they actually make a lot of the cheap and free phones that the major carriers supply. By some estimates they are the fourth most common smartphone brand in the US right now. And they’re in deep hot water with the US Government.

Eagle-eyed readers will remember my mentions of ZTE along with Huawei as Chinese companies that make low-end cell phones. Fedeal agencies have accused both companies  of potentially planting spyware in the backend equipment that makes the cellular networks run. Now ZTE has run afoul of the US government another way. Apparently they’ve been selling technology to Iran and North Korea, something the US frowns upon to put it lightly.

Penalties and fines

Accorting to TechCrunch, ZTE has been found guilty of selling US-manufactured components to companies that we have banned from receiving those components. There will be a fine of $1.2 billion and American companies are banned from selling components to ZTE for seven years. This is obviously a blow to American manufacturers as well, but the real loser here is ZTE. Confidence in the company is expected to continue to drop.

This ban means that Qualcomm cannot sell its popular Snapdragon processor to ZTE. That processor is currently the most popular one in Android phones, and so that really is a big problem for ZTE. Certainly ZTE can use other processors but the Snapdragon really is the big name today.

Phones to remain on shelves

Unlike Huawei, ZTE phones are expected to remain on shelves for now. Huawei lost the support of all major carriers as well as Best Buy, although I’ve personally still seen their phones on display. ZTE phones will probably pick up the slack in the short term as the company goes through its supplies of Motorola and Qualcomm-sourced parts. In order to keep those lucrative carrier contracts, however, they need replacements and they need them fast.

Another sign of international tensions

This is another case where a Chinese company has been singled out as a “bad actor” in the telecom industry. Increasing tensions between the US and China could mean a real change to the way that most consumer electronics are manufactured, as big companies like Apple and Samsung look for manufacturers as far away from China as possible. This could mean higher prices for components, or potentially lower quality. For all the talk in the last two decades of poorly-made Chinese technology, its favtories have evolved to serve the top tier of electronics manufacturers. There are very few electronic devices in the world without at least one Chinese component. (Televes makes 100% of its antennas in Europe. That makes them a rare exception.)

One interesting thing to note: if the US Government had not intervened, stopping Broadcom’s purchase of Qualcomm, then Broadcom would also be under the same restrictions. Without Broadcom, Motorola, and Qualcomm, it is largely impossible to build a cell phone of any sufficient quality. At least that’s what the people in the know have told me.

Impact to the consumer

The impact to the consumer will probably be minimal at first, because cheap phones don’t need powerful processors. In time the major prepaid cell carriers will start moving to other handsets. It actually could be a benefit to the consumer because instead of ZTE phones, carriers like AT&T could move strongly to Samsung phones. Samsung sells a lot of premium phones but also sells its previous-generation hardware as bargain phones.

Certainly this is a big win for any other bargain cell phone maker. It’s really beginning to look like the Huawei and ZTE names are becoming too toxic for carriers to use. We’re all a little more sensitive about privacy now. No one has accused either company of directly planting spyware in cell phones, but there are enough accusations.  It doesn’t matter.