Impact of US ban on ZTE
In mid-April 2018, the United States imposed a seven-year ban on sales to Chinese (FXI) telecommunications equipment and systems manufacturer ZTE. The ban came because ZTE violated US sanctions by illegally shipping telecommunications equipment to North Korea and Iran.
The ban almost put ZTE out of business, as it earns a major portion of its revenue from the US. Moreover, it uses Qualcomm (QCOM) processors to power most of its products. The immediate pressing issue for ZTE is to find a supplier that can replace Qualcomm, giving companies such as MediaTek and Huawei a chance to grab the opportunity.
Samsung in talks with ZTE
A recent report by Reuters stated that Samsung (SSNLF) is in talks with several OEMs (original equipment manufacturers) to sell its proprietary Exynos mobile processor, and ZTE could be one of the OEMs.
In an interview with Reuters, Samsung’s System LSI head and a former Qualcomm executive Inyup Kang said, “We are talking to all OEMs” and expect to announce a new client in the first half of 2019. However, he did not specify which OEMs the company was in talks with. When asked if ZTE could be a potential client, he stated that it is not certain if a deal could be reached between the two companies.
Impact on Qualcomm
Pressure is building on Qualcomm, and the company stated that the ZTE ban would reduce its fiscal third-quarter EPS (earnings per share) by $0.03. Qualcomm might lose some of its business in China to rivals such as Huawei Technologies, MediaTek, and now Samsung.
In our Qualcomm to Lose the Most in US-China Trade Tensions, we stated that except for Samsung, no other rival has developed an alternative to Qualcomm’s high-end Snapdragon 845 chipset. If Samsung opens up its Exynos processor to third-party OEMs like ZTE, it would create a big competitor for Qualcomm with strong capital resources and advanced technology.
Samsung is not only eyeing the mobile chipset market, but also adjacent markets like 5G and automotive. Next, we’ll see if Qualcomm should worry about rising competition from Samsung.
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