ZTE lost $790 million in Q1 due to the impact of the ban
Chinese network infrastructure vendor ZTE has issued a revised earnings report for the first quarter of the year that puts quarterly losses at more than CNY 5.4 billion ($790 million) after taking into account a recent ban imposed by the U.S. government.
The vendor had previously reported a net profit of CNY 1.69 billion for the first three months of 2018, compared with a net profit of CNY 1.2 billion in the year-ago period. Revenue increased 6.9% on year to CNY 27.5 billion.
In its update, the company said it had booked about CNY 6.7 billion in non-operating expenses as a result of the U.S. ban, which temporarily blocked U.S. suppliers from sending components to ZTE.
Executives also reiterated guidance it issued earlier this month that said it expects a net loss in the CNY 7 billion t CNY 9 billion range for the first half of the year, versus a net profit of CNY 2.29 billion a year earlier.
That seven-year ban had been imposed by the Department of Commerce’s Bureau of Industry and Security (BIS) in March this year after the vendor allegedly did not live up to the terms of an agreement that had been worked out after it illegally shipped telecom equipment to Iran and North Korea. As a consequence of the ban, ZTE was not able to buy U.S-made components, which had forced the Chinese firm to suspend trading and cease all business operations.
Earlier this month, the Trump administration formally lifted the ban on U.S. companies selling components and software to the company after it complied with all the requirements of a settlement agreed to in June.
On July 13, Secretary of Commerce Wilbur Ross announced that ZTE had placed $400 million in escrow at a U.S. bank. Shortly after the deposit, the Department lifted the denial order on ZTE. The escrow funds are in addition to the $1 billion penalty imposed by Commerce that ZTE paid to the U.S. Treasury last month.
The DoC said that the $1.4 billion paid under the new settlement agreement are in addition to the $892 million in penalties ZTE has already paid to the U.S government under a March 2017 settlement agreement.
Under the current settlement agreement, ZTE will also be required to retain a team of special compliance coordinators selected by and answerable to the Department of Commerce’s BIS for a period of 10 years. This team will monitor on a real-time basis ZTE’s compliance with U.S. export control laws.
