Technology Sector Ideas

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>>> U.S. Senate Approves Trump's ZTE Deal: Who Will Gain?


Zacks

Nalak Das

July 23, 2018



https://www.zacks.com/stock/news/312621/us-senate-approves-trumps-zte-deal-who-will-gain



On Jul 20, the U.S. Senate Republicans decided against reimposing sanctions on Chinese telecommunications behemoth ZTE. Instead, the Republicans at the behest of President Trump are in favor of his decision to allow the company to do business in the United States with certain restrictions.

Notably, in April, the U.S. Commerce Department imposed the order on ZTE citing that the company had violated the terms of a 2017 settlement which forbids the selling of American technologies to Iran and North Korea.

However, in May, President Trump asked the U.S. Commerce Department to reconsider its order prohibiting all U.S. tech equipment manufacturers from selling products to ZTE. Meanwhile, ZTE paid $1 billion in fine and deposited another $400 million in escrow and pledged that it will not transfer U.S. technologies to other countries.

National Security Concerns Dominate Telecom Space

Trump administration is deeply concerned about China’s drive to unseat the United States as the primary developer and supplier of products in the fields of high-tech sectors. Notably, the Chinese government patronizes most of these big manufacturers. These companies have become serious threat to the U.S. economic and military supremacy.

President Trump has given enough indication that his administration will take special interest in the functioning of the telecom industry. The safeguarding of the highly valuable patents of the American tech heavy companies from Chinese companies is of foremost importance to the U.S. administration.

ZTE Targeted Earlier

The U.S. government had prohibited indigenous mobile chipset developers and optical fiber component makers from selling products to ZTE. President Trump had issued an executive order to restrict select Chinese telecommunications giants primarily ZTE and Huawei Technologies from selling products in the United States.

The Trump administration had barred U.S. companies from selling products to Chinese counterparts due to apprehensions of Chinese spying on Americans utilizing these high-tech products. This move is evidence of the fiercely aggressive stance that the U.S. government is taking to protect innovative next-generation products of the U.S. tech giants. (Read More: Trump to Relax Sanctions Imposed on ZTE: Who Will Gain?)

Who Gains if ZTE Ban is Revoked?

If the U.S. government finally withdraws sanctions imposed on ZTE then the major beneficiary will be mobile chipset developer Qualcomm Inc. (QCOM - Free Report) . The company generates nearly 28% of its revenues from China especially from ZTE and Huawei. Notably, world’s largest chipset developer Intel Corp. (INTC - Free Report) will also gain from the situation.

Secondly, fiber optic component developers will also benefit from removal of selling restrictions on ZTE. Major optical fiber component developers such as Acacia Communications Inc. (ACIA - Free Report) , Oclaro Inc. (OCLR - Free Report) , Finisar Corp. (FNSR - Free Report) and Lumentum Holdings Inc. (LITE - Free Report) will be the gainers.

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