ZTE Reportedly Replacing 3 Executives Over U.S. Sanction Concerns

The Chinese company has been under criticism from the Commerce Department for violating economic sanctions against Iran.

Commerce Department, Iran sanctions, economic sanctions, ZTE, smartphones, China, U.S. government

Three high-level executives of Chinese smartphone and telecom equipment maker ZTE, which allegedly violated U.S. laws by shipping parts from U.S. technology companies to Iran in recent years, will be replaced on April 5 as the company tries to regain the trust of U.S. officials.

The replacement of the three executives was reported in an April 3 story by Reuters, which said that ZTE's board of directors will vote to make the changes as part of a regularly scheduled management shuffle every three years, according to a ZTE spokesman.

Despite that explanation, the planned executive changes come about a month after ZTE was hit by temporary export restrictions by the U.S. government in March as a punishment for allegedly making deals to ship needed parts from U.S. technology companies to Iran in violation of U.S. sanctions that bar such sales, according to an earlier eWEEK story.

The U.S. has for years banned the sale of many items to Iran due to disputes with that country.

The Commerce Department began export restrictions against ZTE in March, which made it harder for the company to get parts it needed from U.S. technology companies. That made it more difficult for ZTE to obtain what it needed to build and sell its products around the world, essentially causing supply chain and delivery issues for the company.

In a statement on its Website in early March, ZTE said it is "fully committed to compliance with the laws and regulations in the jurisdictions in which it operates. ZTE has been cooperating, will continue to cooperate and communicate with all U.S. agencies as required. The company is working expeditiously towards resolution of this issue."

A spokesman for the Bureau of Industry and Security at the Commerce Department did not immediately return two phone calls from eWEEK on April 5, and a spokesman for ZTE also did not reply to several email inquiries about the matter.

Several IT analysts said ZTE's executive changes in response to the Commerce Department's recent export restrictions show just how important the issue is to both sides.

"We've seen numerous companies, such as Google and BlackBerry, face various government challenges in the past," Tuong H. Nguyen, a personal technologies analyst with Gartner, told eWEEK in an email reply to an inquiry. "This story speaks to one of the challenges of expanding a company's global footprint … not just selling to, but sourcing from various geographies to make this growth possible. So it really applies to any company working outside its home market."

The U.S. export restrictions against ZTE, even for a short time, "had a bigger impact because of various components it sources from US companies," said Tuong. "This will likely change ZTE in terms of how they do business and tighter monitoring of how their products are distributed. I don't have details about the agreement between ZTE and the U.S. government, but if the management change is one of the requirements to lift sanctions, then this move will certainly move the discussion forward."

ZTE's business prospects in the U.S. could be affected by the recent wranglings, he wrote. "I think there may be a short to medium term negative impact because of these sanctions and only adds to the longer term challenge for ZTE to further penetrate the U.S. market."

Jan Dawson, chief analyst with Jackdaw Research, told eWEEK that the ZTE case has been interesting because it's "very rare that a big company gets nailed for doing something like this and it has real repercussions."

For ZTE, those repercussions were pretty severe "because it impacts its ability to use U.S.-made components in its devices," according to Dawson. "This is clearly part of a deal with the U.S. government, but it's an amazingly disruptive set of steps to take, which shows you just how seriously ZTE is taking the ban."

Dawson said he believes that ZTE from now on likely "won't be trying to sell goods to Iran or other nations that would get them in trouble anymore, but I don't necessarily foresee a broader change in strategy."

Avi Greengart, an analyst with Current Analysis, said the U.S. demands to ZTE to change its executives in response to the ongoing dispute do not seem unreasonable. "If the government is going to remove the sanctions, demanding personnel changes might actually make sense," he said, based on reports he has read about the situation.

"If the sanctions are in place and U.S. companies are not permitted to sell components to ZTE that really could cripple them," said Greengart. "If Qualcomm can't sell them chips that's really going to be a problem."

China and Iran have close diplomatic, economic, trade and energy ties, and China was active in pushing both the United States and Iran to reach agreement on Iran's controversial nuclear program, according to Reuters.

ZTE has been shipping its smartphones and other products to the United States for years, including the ZTE ZMAX2 through AT&T in September 2015 and the ZTE Warp Elite in August 2015 through Boost Mobile.