China's ZTE sees heavy losses in H1 due to U.S. penalty

The logo of ZTE Corp is seen on its building in Beijing

Chinese telecommunications giant ZTE Corp, which was hit with a trade ban by the United States earlier this year, expects to report a net loss of 7 billion yuan (US$1.04 billion) to 9 billion yuan in the first six months of 2018, the company said in a regulatory filing on Friday.

While we lifted the ban on ZTE, the Department will remain vigilant as we closely monitor ZTE's actions to ensure compliance with all USA laws and regulations.

ZTE, which makes smartphones and networking gear, signed an agreement with the United States on Thursday that paved the way for it to resume operations after a almost three-month ban on doing business with American suppliers.

Shen Meng, director of boutique investment bank Chanson & Co, said the overwhelming response from the stock market reflects the optimism that ZTE is on the way back to business.

On Thursday, ZTE's Hong Kong shares surged 25 percent after Reuters broke news the United States had signed an escrow agreement that paved the way for ZTE to deposit the $400 million.

The $400 million will remain in escrow for as long as 10 years to provide the US government access to the money if ZTE violates the June settlement.

The $1 billion penalty was sent to the U.S. Treasury last month.

Shares of smaller U.S. suppliers, which are more dependent on ZTE, pared losses after the news, including optical component makers Acacia Communications Inc, Oclaro Inc and Lumentum Holdings Inc.

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The sanctions influenced ZTE's decision recently to cease operations, and eliminate its entire board and appoint a new chairman.

Once again several U.S. lawmakers have expressed their disgust with the deal and are moving forward with their bill to reinstate the ban on ZTE due to national security concerns.

The fate of the ZTE amendment is not clear.

"The ZTE settlement represents the toughest penalty and strictest compliance regime the Department has ever imposed in such a case", the Commerce Department said.

Reuters reported on USA demands for a deal on June 1, and on June 5, revealed that ZTE had signed a preliminary agreement with the Commerce Department, along with the fine and other terms.

They pushed for the inclusion of legislation to reinstate the ZTE ban in the National Defense Authorization Act, or NDAA, a must-pass defence policy bill.

The export ban, imposed earlier this year, effectively crippled ZTE by prohibiting United States companies from selling products or services to it.

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