Move may be tied to potential U.S. supply chain disruption.
ZTE is reportedly trimming its workforce by 5% as the Chinese company faces the potential loss of access to chipsets from U.S. suppliers. The United States government is set to impose sanctions on the company next month, which could prevent Qualcomm, Intel and other U.S. chipmakers from exporting to ZTE.
The U.S. export sanctions have been postponed for more than six months, but the last reprieve is set to end next month. It is unclear whether the U.S. Commerce Department will decide at that time to start denying export licenses to companies that want to sell technology to ZTE, but the company is apparently preparing for a business slowdown.
ZTE is reportedly slashing 3,000 jobs, 600 of which are said to be in its handset business. According to Reuters, this would represent a 20% reduction in the size of the company’s mobile device unit and a 5% reduction in its overall workforce.
ZTE has targeted the U.S. smartphone market as has its Chinese rival Xiaomi. But Huawei is the biggest rival, competing with the company not only in the device segment but also in the market for wireless infrastructure. Some of the ZTE employees slated to lose their jobs have reportedly been singled out because they are thought to have tried to get jobs at Huawei.
With 20 American offices/research centers and several NBA team sponsorships, ZTE clearly wants to maintain its U.S. business relationships. But the company ran into trouble when the U.S. Commerce Department discovered documents that explained how the company would establish new entities to sell banned technologies to Iran. United States law prohibits the sale of many U.S. goods to Iran.
ZTE also has problems that are unrelated to the potential U.S. export ban. Zhao Xianming, the company’s chairman, described 2016 as a year of “crisis,” and has said he wants to abandon business units that don’t measure up to expectations. It’s not clear whether one of those could be the company’s handset business. As the smartphone market matures and consolidates, several vendors have been hit hard. ZTE saw smartphone sales tumble more than 35% last year, according to IDC.
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