The Chinese telecommunications company ZTE is currently under investigation by the Federal Bureau of Investigation (FBI) for its alleged business dealings with an Iranian telecommunications company, reported CNET.
The FBI is reviewing ZTE Corporation (SHE:000063) for its possible purchasing of hardware and software from U.S. technology companies and its subsequent and illegal shipping of them to Iran’s government-mandated carrier, the Telecommunication Co of Iran (TCI).
The story isn’t a new one; Reuter had a story on it in March, writing that ZTE had sold to TCI a surveillance system that was able to monitor phone and Internet communications of Iranian citizens. In addition, the Iranian company also grabbed Hewlett-Packard Company (NYSE:HPQ), Dell Inc. (NASDAQ:DELL) and Cisco Systems, Inc. (NASDAQ:CSCO) equipment as well as additional company wares.
The two companies had also supposedly penned a $130.6 million contract in December 2010.
FBI’s ZTE Review
From the FBI’s review, it discovered that ZTE Corporation (SHE:000063) had tried to hide its TCI contract after Reuters ran its story, reported the Smoking Gun. ZTE’s lawyers had allegedly discussed hiding evidence from investigators through numerous ways including the shredding of documents to lying but whether this actually happened has not been proven.
For Iran, it has received increasing worldwide sanctions that bans it from getting non-humanitarian products from the U.S., reported CNET. At issue now is whether Iran obtained ZTE shipments via U.S.-based companies. If so, then the carriers would have been in violation of numerous federal laws and a trade embargo.
As a result, legal action could quickly take place.
While this is bad news for ZTE, there’s more. On Friday, Reuters reported that the company warned of a first-half profit decline–as high as 80 percent–from tightening margins, foreign exchange rate losses and domestic operator networks postponing their tenders.
A declining euro and numerous emerging currencies from the debt crisis had resulted in ZTE’s foreign exchange loss. In the same time period as compared to the previous year, ZTE had reported a gain.
In addition, ZTE’s network tenders postponement will result in the company missing its revenue growth target for the year’s first half, said the company. ZTE is the fourth-biggest mobile device maker worldwide with a 4.2 percent global market share from the first quarter.
ZTE joins a number of recent Chinese companies such as China Eastern Airlines, China Southern Airlines Co Ltd and Li Ning Co Ltd that announced profit warnings that exemplified the global slowdown’s effect on the second largest economy in the world.