U.S. Commerce Department bans selling China’s ZTE

U.S. Commerce Department bans selling China’s ZTE, It’s never good when you’re suddenly banned from selling to a major customer.



That’s the position Acacia Communications Inc. ACIA, -35.97% is in Monday after the U.S. Commerce Department said it would prohibit American companies from supplying components to Chinese hardware firm ZTE Corp.

Acacia shares are off 38% following the report of the ban, which stems from ZTE’s past violation of Iran sanctions and its refusal to punish involved employees as it had promised.

The ban is a clear “negative” for Acacia, according to MKM Partners analyst Michael Genovese, who has a neutral rating on the stock. The company said in its latest annual report that it generated 30% of its revenue in 2017 from ZTE.

“Currently the big 100+G project in China is the China Telecom Metro build, where Huawei already has 70% market share and Lumentum is the primary ROADM vendor.”

Lumentum is in the midst of acquiring Oclaro and Genevose doesn’t foresee Lumentum revising its offer price downward. Oclaro generates about between 10% and 15% of revenue from both Huawei and ZTE and gets another 10% from Nokia.

Genevose deems it unlikely that the Chinese government will seek to block the deal as a result of the sanctions. “Huawei is closely associated with the Chinese government, and Huawei and ZTE strongly dislike each other. “So the Chinese government is overly concerned about U.S. sanctions against ZTE.”

Shares of Finisar Corp. FNSR, -4.05% are off 4.1% in Monday’s session, but even though the company is more exposed to Huawei than to ZTE.