On April 16th, 2018, the U.S. Department of Commerce banned American companies from exporting parts to ZTE. Given that 25%+ of the components that make up ZTE equipment comes from U.S. manufacturers, ZTE was forced to shut down its production lines. While most people are aware that ZTE manufactures mobile handsets, most were not fully aware that the bulk of their revenue comes from telecom exchange, optical transmission, and other tier one communications equipment.
Some suggest this may be an elaborate negotiation and, in the end, the ban may be lifted, or another alternative scenario may develop. Despite the daily headlines or latest Presidential tweets, we are advising all clients to assume and plan for the worst and are therefore urging them to take a very proactive approach to analyze and assess the risk and form contingency plans for which NET(net) can formally assist.
Key areas to immediately assess and plan around:
Understand the scope and breadth of ZTE exposure. Create a definitive impact analysis map that illustrates the ZTE landscape and prioritize risk and contingencies. Once identified, you can engage the feasible alternatives (see #3 and #4 below) and apply their resources where needed to get them up to speed.
Perform an Immediate review of terms and conditions related to breach of contract, related bankruptcy issues and ZTE’s responsibilities related to Support and Maintenance and Service Levels. Understanding in detail the terms and conditions will help you formulate contingency plans and formulate potential legal actions you may need to take to protect your existing assets and enforce compliance in areas where ZTE can still perform.
Given the sunk cost in current investments and assets, it will be critical to understand and assess ZTE’s ability to execute support services both in the short term and the foreseeable future. Regardless of the current situation, a contingency plan must be started to understand what other 3rd party options are available to both supplement and potentially replace ZTE. This includes 3rd party options to support your existing investment in ZTE products while you prepare a transition to other suppliers.
Hardware Spares and Break Fix
As with ongoing support, where are you going to source replacement equipment, let alone find someone to install and support it. There is not currently a mature market for ZTE 3rd party support, but this could change quickly if ZTE withdrawals from the market. If you were not already prepared with alternatives, this is an excellent time to evaluate your support options and act to get another supplier in place.
Long term alternatives
There are a plethora of long term business issues and strategies that are now in jeopardy due to this shut down. Migration from 4G to 5G being a major factor for many as ZTE was heavily invested in moving to the new standard. If your company is invested with ZTE in moving in this direction for upgrading your network, yesterday was the time to start exploratory discussions and issue RFIs with Nokia, Ericsson, and Huawei.
We can help with every step listed above and have a complete program that can help disentangle and mitigate risks associated with your ZTE estate.
- Agreement: Terms, Conditions, Remedies, Negotiation or Renegotiation
- Investments: Associated Risk, Cost out for transformation/shift of assets
- Relationships: Metrics to manage, sourcing of new or alternative suppliers
To schedule a discussion on our services specific to ZTE, our Telecom practice, or any Technology Supply Chain questions, contact Dexter Siglin at firstname.lastname@example.org, and we’ll arrange for a Subject Matter expert to review your situation.
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