ZTE Reportedly Reaches Deal With US; Optical Stocks Mixed

Optical stocks were trading mostly higher Wednesday morning after reports the U.S. Commerce Department reached an agreement to lift a ban on business with China's ZTE.

What Happened

The U.S. government banned U.S. companies from selling telecommunication equipment to China's ZTE in April, accusing the company of illegally doing business with Iran and North Korea. Reports over the past few weeks suggested the Trump administration would lift the ban, and a new Reuters report said an agreement has been reached in which ZTE would pay a $1-billion fine and place an additional $400 million in escrow for potential future violations.

The Reuters report cites sources familiar with the matter and quotes a Commerce Department spokesman as saying "no definitive agreement has been signed by both parties."

Why It's Important

Investors have reason to believe the Reuters report is accurate, as the Commerce Department's response confirms the government is in talks but has not reached a final agreement, Height Capital Markets analysts said in a research report. A "broad framework" of a deal has been discussed, including preliminary agreements with ZTE that would allow it to stay in business, according to Height. 

While an agreement with ZTE may be delayed by the ongoing trade dispute with China, an agreement could be reached to coincide with upcoming events that include the June 15 tariff finalization, Height analysts said.

Doing so would "keep the Chinese at the table" and is likely part of a strategy to expand an agreement with China that would pave the way for $70 billion in new agricultural and energy purchases from American companies, according to Height. 

What's Next

Any final agreement with ZTE would need the support of Democrats and could also face notable opposition from members of President Donald Trump's own party. U.S. Senate Democratic leader Chuck Schumer was quoted by Reuters as saying: "Congress should move in a bipartisan fashion to block this deal right away."

Optical stocks were mixed Wednesday morning:

• Applied Optoelectronics Inc AAOI was down 4.36 percent. 
• Finisar Corporation FNSR was trading nearly flat.
• Lumentum Holdings Inc LITE was trading up 0.25 percent. 
• Oclaro Inc OCLR was up 0.78 percent. 
• Acacia Communications, Inc. ACIA was up 1.84 percent. 

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Photo by Karlis Dambrans/Wikimedia.