Chinese phone maker ZTE saved from brink after deal with U.S

By Karen Freifeld

(Reuters) - U.S. Commerce Secretary Wilbur Ross said on Thursday the government has reached a deal with ZTE Corp that reverses a ban on its buying parts from U.S. suppliers, allowing China's No. 2 telecommunications equipment maker to get back into business.

Under the deal, ZTE will change its board and management within 30 days, pay a $1 billion fine and put $400 million in escrow. The government will suspend the 10-year ban but it can activate the ban if there are any violations.

"We will closely monitor ZTE's behavior," Ross said in a statement. "If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow."

ZTE ceased major operations in April after a seven-year ban was imposed on the company for breaking a 2017 agreement that was reached after it was caught illegally shipping goods to Iran and North Korea.

Reuters reported exclusively on Tuesday that ZTE had signed a preliminary agreement with the Commerce Department, along with the fine and other terms.

Ross said on Thursday the penalty is the largest the Commerce Department has ever levied. ZTE was assessed $2.29 billion in civil and criminal penalties by the Commerce Department and other U.S. agencies since last year.

ZTE did not immediately respond to requests for comment on Thursday.

Under the deal, ZTE must retain a compliance team selected by the Commerce Department for 10 years. The company already has a U.S. court-appointed monitor.

Ross, speaking about the agreement on CNBC on Thursday, said he did not think the arrangement would have any effect on tariff talks with China.

ZTE's survival has been a topic of discussion in high-level U.S.-China trade talks.

U.S. President Donald Trump met with his trade advisers on Tuesday to discuss China's offer to import an extra $70 billion of American goods over a year in hopes of defusing a potential trade war between the world's two largest economies.

Ross said on Sunday he had been having frank, useful talks in China about exports, as Washington presses its message to Beijing about structural economic changes amid the festering trade dispute.

One of the U.S. companies caught in the crossfire is Qualcomm Inc, whose products account for the lion's share of chips inside ZTE smartphones. Separately, Qualcomm is trying to get Chinese approval for its pending $44 billion acquisition of NXP Semiconductors NV.

Qualcomm Chief Executive Officer Steven Mollenkopf said on Thursday he hoped the ZTE agreement would pave the way for the NXP approval. "I hope it means something good to us, but we are really focused more on our individual application," Mollenkopf told a corporate governance conference in New York. Shares of Qualcomm Inc rose 2 percent to $61.255, while NXP jumped 6.2 percent to $121.60.

ZTE supplier Oclaro Inc rose almost 1 percent while Acacia Communications Inc was down 1.5 percent. Oclaro got 18 percent of its business from ZTE last year, while 30 percent of Acacia's total revenue was from ZTE.

(Reporting by Karen Freifeld; additional reporting by Susan Heavey, Eric Walsh and Supantha Mukherjee.; Editing by Jeffrey Benkoe)