The US government is going after another Chinese Android device maker. After shutting down Huawei’s carrier deals and retail partners, the government is now pursuing ZTE. The US Department of Commerce has banned US companies from selling parts and software to ZTE for seven years.
ZTE was caught violating US sanctions by illegally shipping telecommunications equipment to Iran and North Korea. The company then made things worse by “making false statements and obstructing justice, including through preventing disclosure to and affirmatively misleading the US Government,” according to the Department of Commerce. The company reached a settlement with the government, agreeing to pay up to $1.2 billion in penalties and discipline the employees involved in the sale.
Recently, the Commerce Department found ZTE was not complying with this settlement, which triggered the next part of the agreement: a seven-year ban on US exports to ZTE. The company is no longer allowed to use US components and, possibly, software in its devices.
Reuters estimates that “25 percent to 30 percent” of the components in ZTE devices come from the US. One big supplier is Qualcomm, which owns a very large chunk of the SoC market and tons of cellular connectivity patents in the US. Estimates given to Reuters put Qualcomm’s chips in 50 to 65 percent of ZTE devices. Qualcomm is dominant in the US, but worldwide ZTE could possibly survive by just using Taiwan-based MediaTek SoCs in every device.
The latest news from Reuters raises even bigger issues for ZTE, though. A source told Reuters that “The Commerce Department decision means ZTE Corp may not be able to use Google’s Android operating system in its mobile devices.”
Android is free and open source and will probably remain free for ZTE to use without Google’s involvement. Reuters’ source is probably referring to the Google apps, which aren’t sold to device makers but are carefully licensed to them in exchange for other concessions. The Google apps package includes popular services like Gmail and Google Maps, and it also unlocks the Play Store, Google Play Services, and the entire Android app ecosystem. For a market-viable Android device, the Play Store is pretty much mandatory in every country other than China. So while ZTE could conceivably source hardware components from non-US sources, being locked out of the Play Store would devastate ZTE’s smartphones worldwide.
The text of the export denial order certainly implies a software ban. The order says ZTE is “incapable of being, or unwilling to be, a reliable and trustworthy recipient of US-origin goods, software, and technology” and “may not, directly or indirectly, participate in any way in any transaction involving any commodity, software, or technology exported or to be exported from the United States…”
ZTE is mostly a low-end device maker that doesn’t make a lot of noise in the tech media. Despite that, it still managed to be the number-four smartphone seller in the US, thanks to deals with the four big carriers. The company started to gain publicity in the tech news cycle with the Axon 7 launch in 2016. In a similar vein to OnePlus devices, the Axon 7 combined a high-end SoC (the Snapdragon 820) and other “good enough” specs at a $400 price point. The company never followed up the Axon 7 with a true successor, though. Lately, ZTE has been producing crazy concept devices like the dual-screen Axon M and the dual-notched “Iceberg” concept.
ZTE was most recently in the news for being Google’s sole US launch partner for Android Go. Android Go is a revamped Android package from Google designed to run on super low-end phones with 1GB of RAM or less. Google has tweaked Android and built several new “Go” Google apps from scratch with low-end devices in mind. While worldwide there are several OEMs creating Android Go devices, the ZTE Tempo Go was the only device planned for the US at launch.