Qualcomm, ZTE may be ensnared in budding U.S.-China trade war

U.S. china flags
Relations between China and the United States continue to be strained. (Glenn Fawcett/DOD)

Qualcomm and ZTE appear to have suffered the latest wounds amid the brewing trade war between the United States and China. And the issue appears to be growing in importance for the U.S. wireless industry considering a new report indicates China may well take the lead in the race to 5G based on the resources the country appears to be putting toward the network technology.

First, and perhaps most importantly, Qualcomm is reportedly preparing to refile its application to acquire NXP with Chinese regulators. The action reflects the fact that China is now the only country that hasn’t signed off on Qualcomm’s proposed purchase of NXP—a transaction Qualcomm has argued is critical to its long-term growth prospects.

As Reuters reported, citing unnamed sources, Qualcomm is preparing to refile its NXP purchase application with the Chinese Ministry of Commerce (Mofcom), which could give the company another six months to get the transaction approved.

Although Qualcomm’s CEO Steve Mollenkopf received assurances from China’s vice president during a meeting in late March that the transaction wouldn’t be affected by global politics, according to the Wall Street Journal, observers are nonetheless cautioning that China could withhold approval in retaliation for U.S. tariffs on Chinese imports.

Adding fuel to the fire, President Trump a month ago blocked Broadcom’s attempt to purchase Qualcomm due to what he said was national security concerns over possible Chinese espionage.

Separately, the U.S. Commerce Department today said it blocked ZTE from exporting sensitive technology from the United States due to what the agency said was ZTE’s false claim that it reprimanded employees involved in illegally shipping telecom equipment to Iran and North Korea.

“ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored,” Secretary of Commerce Wilbur Ross said in a statement.

The Commerce Department expressly said its action against ZTE is “is unrelated to any ongoing trade-related actions.” But when put into the wider context of U.S.-China relations—which stretches from a proposed FCC action against ZTE, Huawei and other companies to Trump’s allegation that China and Russia are intentionally devaluing their currencies—the department’s action against ZTE takes on an added significance.

Indeed, the issue is such that the U.S. wireless industry trade, CTIA, issued a report warning that the U.S. is losing out to China in the race to overall 5G readiness.

“Our research shows China with a slight lead in 5G readiness, with South Korea and the U.S. close behind,” said David Abecassis, partner in Analysys Mason, the firm that conducted the study on behalf of CTIA. “The U.S. led the world in 4G, and the U.S. wireless industry is leading global 5G research and development with aggressive commercial 5G deployment plans that will benefit U.S. consumers.”

CTIA, not surprisingly, represents major U.S. wireless network operators like Verizon and AT&T, which are urging the U.S. government for more spectrum and streamlined regulations for 5G build-outs.