US Partners Flee Troubled ZTE 中兴遇美国顾问卸任
A key US consultant has severed his ties with troubled telecoms equipment and cellphone maker ZTE (HKEx: 763; Shenzhen: 000063), in a worrisome development that could presage more similar defections as people seek to distance themselves from the controversial company. ZTE and crosstown rival Huawei were already facing a difficult time in the US and Europe for several trade- and security-related reasons, but ZTE’s outlook grew dimmer still last month when word got out that the company was being investigated for allegedly selling banned US computer equipment to Iran to help that country set up a sophisticated telecoms surveillance system.
The US has launched an investigation into the alleged illegal sales, and the potential for a guilty verdict acted like a guillotine hanging over ZTE’s head since then. The company’s shares have been in virtual free-fall this year amid the slew of investigations against it, losing up to 60 percent of their value at one point and still down by half as of last week.
Let’s look at the latest news, which has Jon Christensen, a former congressman from Nebraska, saying he formally terminated his relationship as a lobbyist for ZTE on July 13, a day after the FBI confirmed it was investigating the company over the Iran allegations. (English article) The loss of a major lobbyist is certainly bad news for ZTE, which, together with Huawei, have both hired a stable of former politicians to help convince a skeptical Washington that their telecoms equipment doesn’t pose any security risk for spying from Beijing.
Equally worrisome to Christensen’s departure is the potential for more defections of key locally base consultants. Those consultants are critical not only in the US, where ZTE has found a strong market for its low-end smartphones, but also in Europe, where the company and Huawei are being investigated over separate trade-related allegations that they receive unfair subsidies from Beijing.
Since Washington and the European Union have consistently spoken in a single voice over Iran, whose nuclear energy program they suspect of being a cover for atomic weapons development, I wouldn’t be surprised if Europe ultimately opens its own investigation into ZTE’s alleged illegal sales of Western-made computing and telecoms equipment to Iran. If and when that happens, we could ultimately see both the US and Europe eventually rule that ZTE did indeed make the illegal sales and take punitive actions.
While such a ruling would have minimal impact on ZTE’s North American telecoms equipment sales, which are negligible, those sales could take a much bigger hit in ZTE’s more important European market as companies seek to distance themselves from the Chinese firm. Furthermore, ZTE’s smartphones, which have found strong markets in both the US and Europe, could also suffer if buyers worry about the potential for trouble and stop purchasing the models, dealing another big blow to the company.
All things considered, ZTE stock certainly looks like an investor hot potato for at least the next 6 months until its situation becomes more stable, and its longer-term prospects could also look bleak if the US and Europe decide to take strong action against the company.
Bottom line: The departure of an important US lobbyist from ZTE may be the first a new string of defections from the company over allegations of illegal sales to Iran.
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