CSCO Cisco Systems Inc

By Jay Greene 

American companies that supply chips, antennas and other gear to ZTE Corp. are bracing for a sizable revenue loss after the U.S. last week said they no longer would be able to sell components to the Chinese telecommunications giant.

Several ZTE vendors watched their stock prices stumble in recent days, collateral damage after the Commerce Department put in place a seven-year ban, as national-security and trade-related tensions flare up between the U.S. and China. Giants such as San Diego chip maker Qualcomm Inc. and niche companies such as Acacia Communications Inc., a Maynard, Mass.-based maker of fiber-optic networking components, are among U.S. companies affected.

U.S. chip makers sold about $1.5 billion worth of products to ZTE, according to Handel Jones, chief executive of the technology consultancy International Business Strategies Inc., which tracks China's high-tech sector. ZTE made 3.8% of smartphones world-wide in 2017, he estimates.

The pinch is particularly acute for Acacia, which noted in a February filing that ZTE accounted for 30% of its $385.17 million in revenue last year. Acacia, which had 354 employees at the end of 2017, said "the loss or temporary loss of a major customer for any reason could harm our financial condition."

Acacia, a roughly $1.1 billion company whose stock has slid 31% since the ban was announced on April 16, said it was "taking steps to suspend affected transactions and is assessing the impact of these developments." It declined to comment further.

Qualcomm's shares have tumbled 9%. ZTE contributed between 1.5% and 2.5% of Qualcomm's $22.3 billion of revenue in 2017, according to Stacy Rasgon, an analyst at Bernstein Research.

Two years ago, the Commerce Department placed similar export restrictions on ZTE but quickly suspended them. In a regulatory filing last May, Xilinx Inc., a San Jose, Calif., maker of programmable chips, said if those sanctions hadn't been lifted "the restrictions could have caused a material adverse effect" on its business.

A spokeswoman said Xilinx, whose shares have fallen 7% since the ban's announcement, is "obviously aware of the situation and will be addressing it during our earnings call" Wednesday.

After the ban was announced, ZTE warned the order "will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies."

More than a dozen U.S. companies listed ZTE as a customer in previous financial filings.

NeoPhotonics Corp. said ZTE directly or indirectly accounted for 4% of the $292.89 million in revenue it posted last year. The San Jose-based maker of optical gear had been counting on that business to jump to 5% of annualized revenue. Now those expectations "will not be realized," the company said in a statement April 17. Moreover, NeoPhotonics said it is sitting on $1.5 million in inventory "designated for ZTE" that it will write off. Its shares have fallen 13% since the ban's announcement.

Oclaro Inc. has said ZTE accounted for 18% of the $600.97 million it posted in fiscal 2017 revenue. The San Jose maker of optical components is in the process of being acquired by Lumentum Holdings Inc. in a $1.8 billion transaction.

The Sunnyvale, Calif., memory-chip maker GSI Technology Inc. has said ZTE "directly or indirectly purchased more than $500,000" of its products in the previous fiscal year. Skyworks Solutions Inc., of Woburn, Mass., has listed ZTE as a "key customer" along with Amazon.com Inc., Cisco Systems Inc. and Microsoft Corp.

Lumentum and Skyworks representatives declined to comment. Oclaro and GSI didn't respond to requests for comment.

Corning Inc., which makes screens called Gorilla Glass used in smartphones from ZTE and others, said it was assessing whether the order applies to its products made at its factories in Taiwan, Japan and South Korea. The company said it wasn't sure whether Gorilla Glass includes content that falls under U.S. export controls.

"We are continuing to monitor the situation and determine if the order impacts products made in foreign destinations," spokesman Daniel Collins said.

A Commerce Department spokesman said ZTE won't be able purchase goods, software or technology subject to the agency's Export Administration Regulations, regardless of where they might be manufactured.

--Ted Greenwald in San Francisco, Liza Lin in Beijing and John McKinnon in Washington contributed to this article.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

April 24, 2018 05:44 ET (09:44 GMT)

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