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How Would ZTE Ban on Procuring US Tech Supplies Impact the Smartphone Market?

by: - Last updated on: April 19th, 2018

ZTE is in some serious mid-year crisis. A recent sanction by US Department of Commerce has prohibited US technology companies from exporting their products to ZTE for a period of seven long years. The latest ban comes as result of the disobedience of a previous sanction imposed on the Chinese OEM regarding illegitimate sale of US-developed technology products to political arch-rival countries like Iran and North Korea.

ZTE US Ban

Very recently, the US government imposed a similar ban on China’s largest smartphone manufacturer, Huawei. The ban while affecting Huawei’s revenue to some slight extent, failed to create a major crisis for the company. Firstly, Huawei has been growing strong with a marked YoY increase in terms of both revenue and profit. Additionally, it wasn’t as dependent on Qualcomm as ZTE, mostly due to its own system-on-chip (SoC) making prowess. Huawei has used its in-house Hi-Silicon based Kirin processors in its flagship devices too, and that includes the newly launched P20 and P20 Pro.

Unlike Huawei, the Shenzhen-based ZTE would be adversely affected by the sanction inflicted on them by the US government. Some analysts go to the extent of claiming that ZTE is now dead. Well, that may not be entirely true as of yet; but the situation is graver than you possibly think. In fact, the ban would not just affect ZTE; but shake up the smartphone market by a significant extent. Here’s our take on the possible results of the latest sanction on the world’s second-largest telecom equipment manufacturer and one of the top global smartphone vendor.

Android May Lose its 9th Largest Global Smartphone Manufacturer

The seven-year ban imposed by US Department of Commerce will affect ZTE’s partnership with Google. Analysts believe that the ban would cut off ZTE from the world of Android, as the OS is essentially the US produce, and the sanction imposed on the firm covers not just hardware components but also software originating from the country. Neither ZTE or Google has come up with an official confirmation regarding the news, and whether or not it will affect the Chinese OEM’s ability to sell Android-based smartphones.

ZTE Android Ban

Force ZTE to Limit its Smartphone Market to China

Even if ZTE passes away with the right of using the Android OS, it would in most cases be barred from using Google Play Services and the host of other apps developed by the Mountain View-based giant. This would essentially limit ZTE’s market presence only to China, as it very unlikely for consumers outside China to show interest in an Android smartphone that lacks the basic Google apps which includes the likes of Gmail, Google Maps, Google Drive and so on. For starters, the smartphones sold by ZTE in China comes with Baidu and other China-specific apps like Weibo and WeChat; due to the ban imposed on the use of Google, Facebook and WhatsApp by the Chinese government.

Axon Lineup of Devices May Cease to Exist

The ban would severely affect ZTE’s smartphone manufacturing prowess. Its Axon lineup of flagship devices is currently powered by mobile platforms sourced from none other than US-based leading chipmaker Qualcomm. However, the newly imposed ban would cut off the company from Qualcomm’s supply chain, and thereby force them to either dump the flagship Axon range completely or look out for some other chipmaker for supplying the sheer firepower for its premium lineup. Moreover, very few chips out there are capable of matching up with Qualcomm’s latest Snapdragon 845 which was supposed to make its way to the ZTE Axon 9. Only, the Exynos 9810 comes close to the Snapdragon in terms of performance, but it’s very unlikely for the Chinese OEM to be able to source components from Samsung.

Fate of the World’s First Foldable Smartphone Hangs in Darkness

ZTE Axon M

Not just the Axon 9, the fate of the world’s first foldable prototype smartphone aka ZTE Axon M also looms in darkness. It’s powered by the last generation Qualcomm Snapdragon 821 processor and additionally relies on a few other Qualcomm’s patented technologies.

Fuel Demand for Mediatek and Exynos Processors

Gauging the current scenario, it’s not hard to expect increased demand for Mediatek chips, most of which would be fueled by none other than ZTE. With that said, none of Mediatek’s current lineup of SoCs is capable of matching up with the likes of Qualcomm or Exynos. This would effectively force ZTE out of the flagship market, and convert them primarily into a budget or mid-range smartphone maker.

Surge Increase in Local Chinese SoC Manufacturer

Some analysts believe that the Chinese government would push small-scale industries based in the country to venture into chip development. These enterprises would, in turn, be technologically backed by industry heavyweights like ZTE, Oppo, and Vivo; thereby resulting in a complete backfire of USA’s anti-China move. Currently, Xiaomi and Huawei are the only two major Chinese players who are ramping up their chip designing capabilities.

Deter Major Chinese OEMs like Xiaomi, Oppo, and Vivo from entering USA

Until very recently, a large number of leading Chinese smartphone manufacturers were planning to expand their market by adding the not only impact ZTE’s network businessUS to its sales map. These OEMs includes the likes of Xiaomi and BBK Electronics based sub-brands Oppo and Vivo. The subsequent ban on Huawei and ZTE is likely to dishearten most of them from betting big on the world’s most profitable smartphone market.

Slow-down 5G Development by Affecting ZTE’s Networking Business

The US technology supplies ban doesn’t only encompass the smartphone market, as its effect is set to affect ZTE’s main cash cow; specifically, its networking business. ZTE is currently, the world’s second largest telecommunication hardware manufacturer. And just like its smartphone business, that too is widely dependent on US supplies.

5G e1524070619855

In what seems to be a repercussion of the ban imposed by US Dept. of Commerce, UK based National Cyber Security Cell (NCSC) has warned local telcos from using network products developed by ZTE. This would not only impact ZTE’s network business but also hinders the development of 5G. Apparently, Huawei and ZTE were the fore-runner in the development of hardware surrounding the upcoming and highly anticipated 5G network. ZTE’s doom may, however, act as a blessing in disguise for Huawei; resulting in the company gaining a near monopoly in the market.

Apart from all these, it would be interesting to see if the ZTE ban on procuring the US developed foreign supplies affect its nubia sub-brand. Moreover, ZTE is all set to unveil its gaming smartphone under a new Red Magic brand in China later today, however, it’s hard to expect a prospective future for the brand especially when the fate of its parent firm looms in darkness.

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