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Companies

ZTE weighs sale of smartphone business as supplies freeze

Huawei, Oppo and Xiaomi said to be in the hunt

ZTE's smartphones have vanished from the company's online store and many retailers as production grinds to a halt. (Photo by Yu Nakamura)

GUANGZHOU -- ZTE is considering selling off its smartphone business as a U.S. tech export ban halts production, giving heavyweights such as Huawei Technologies, Oppo Electronics and Xiaomi a chance to enlarge their shares.

The potential sale, reported by Chinese media, comes at a moment when this country's smartphone market is on the decline. Shipments in the January-March quarter this year fell below 100 million units for the first time since 2013.

The shrinking market has killed off smaller players, which counted hundreds until five years ago. The U.S. ban is set to further trigger a realignment of the Chinese smartphone industry.

ZTE's consumer business, which primarily makes smartphones, logged 35.2 billion yuan ($5.53 billion) in revenue in 2017, ranking at No. 9 globally. While it is not a top player in its home market of China, it has enjoyed success in the U.S., ranking fourth in the maket. But with American companies barred from exporting technology to ZTE for seven years, those figures are poised to plunge.

Market leader Huawei, number two Oppo and fourth ranked Xiaomi -- which last week filed for a potentially massive listing in Hong Kong -- are said to be potential buyers.

The U.S. Commerce Department enacted the ban on April 16, saying the Chinese maker made false statements to the U.S. when negotiating a $1.19 billion settlement last spring over illegal telecom equipment shipments to Iran and North Korea, as well as after that settlement was reached.

ZTE has been forced by the ban to suspend smartphone production, unable to get parts from key suppliers such as California-based chipmaker Qualcomm. Facilities turning out handsets sit idle, and production staff unable to do their assigned jobs are instead undergoing technical training, a worker outside ZTE's Shenzhen headquarters told Nikkei on Tuesday.

The company has pulled all smartphones from a showroom at its headquarters and suspended online sales through the ZTE website. Sales through many third-party retailers have also ceased, and inventory at others is quickly disappearing.

But selling that business will not resolve ZTE's challenges. While smartphones make up around 30% of the company's revenue, telecom network equipment accounts for roughly 60%. Those operations are also heavily reliant on American chipmakers for supplies.

ZTE is "actively communicating with the relevant U.S. government departments in order to facilitate the modification or reversal" of the ban, the company said in a statement Wednesday evening. Trading in ZTE's Hong Kong-listed shares has been suspended since April 17, and the company has postponed its annual shareholders meeting, originally scheduled for Friday, to the end of June.

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