ZTE corrects Chinese social media's misconception about the company

A year before Huawei was placed on the U.S Commerce Department's Entity List and banned from accessing its U.S. supply chain,  ZTE was placed on the list. The company had sold goods and services to Iran and North Korea violating sanctions placed on those two countries and failed to adhere to punishments placed on it by the Commerce Department. After nearly one month of being unable to buy hardware, software, and components from the states, an unlikely savior appeared. President Donald Trump asked the Commerce Department to work out a deal with ZTE; the latter paid a $1 billion fine, put $400 million in escrow to cover future transgressions, overhauled its board and executive team, and allowed a U.S. compliance team to monitor the company.

ZTE was the fourth most popular smartphone brand in the U.S. prior to its placement on the Entity List. After being taken off the list, the company never recovered as Motorola took over ZTE's spot in the U.S. But last Thursday, ZTE's shares soared 21% after ZTE President Xu Ziyang said that the manufacturer's 7nm chips have achieved mass production and that 5nm chips will be launched in 2021. But posts on Chinese social media sites Weibo and WeChat incorrectly stated that the chips were being produced by ZTE which set off the stock market surge.

As it turns out, ZTE is fabless like Apple, Huawei, Qualcomm, and MediaTek to drop some names. All of those companies design chips but when it comes to production they rely on a foundry like TSMC. Those who posted analysis about Xu's comments on Weibo and WeChat didn't understand that the executive was merely discussing ZTE's chip designs; the company uses TSMC to manufacture the components.

On Saturday, ZTE issued a letter clarifying the situation. It read, "We are aware of several recent media reports that ZTE's 7nm chips are being mass-produced at scale and 5nm chips are being introduced. These are misinterpretations. Some of the reports are factually incorrect and have caused distress and disruption to the company's normal operations. In the field of chip design, ZTE focuses on the design of communication chips but does not have chip manufacturing capabilities. The company has more than 20 years of experience in the design of dedicated communication chips and has a full range of capabilities from chip system architecture to back-end physical implementation. In chip production and manufacturing, we rely on global partners to divide the production. The design and manufacture of chips require the cooperation of the entire industry chain, and we have been working closely with all parties in the chain to build our competitiveness and to continuously create value for customers."

In a separate press release on Saturday, the company said, "ZTE Corporation has noticed that recently some social media outlets have misinterpreted ZTE's 7nm chipsets large-scale production and 5nm chipsets introduction...Now, the Company must clarify that it is not capable of producing or manufacturing chipsets, though the Company has constantly focused on the design of telecommunications chipsets in the field of chipsets design. In terms of the design of dedicated telecommunications chipsets, the Company has more than 20 years of experience, with the full-process customized design capabilities, ranging from chipset architecture to back-end physical realization. In terms of chipsets production and manufacturing, the Company is supported by the division of production of global industry partners. The design and manufacturing of chipsets requires the full cooperation of the entire industry chain. Therefore, the Company has always maintained close cooperation with all parties in the industry chain to build the cornerstone of the Company's competitiveness aimed to create value for customers.

On Friday, ZTE's shares gave back 2.63% and is poised to give back a lot more on Monday now that the company has put the kibosh on the rumor that it is mass-producing its own chips.