ZTE Partnership with Cisco on Indefinite Hold after Investigation

Cisco Systems recently ended a seven-year sales partnership with Chinese telecommunications equipment manufacturer ZTE (News - Alert) Corp after an internal investigation confirmed that the latter company had sold Cisco networking gear to Iran, breaking U.S. sanctions against such actions. Allegations of this have been floating around since earlier this year when the Reuters (News - Alert) news agency reported that ZTE had sold equipment to TCI, Iran's largest telecoms firm.

Apparently, ZTE also agreed last year to ship large quantities of U.S. equipment worth millions of dollars, including Cisco (News - Alert) switches, to a unit of the government-controlled group which controls TCI. The stories led to a number of internal investigations by the companies involved in addition to probes by the U.S. Commerce Department, a congressional committee and the F.B.I.

Meanwhile, ZTE's Texas-based subsidiary has stated that its parent company was plotting to cover up any evidence of its Iran deals by shredding documents.

"ZTE is highly concerned with the matter and is communicating with Cisco," said David Dai Shu, a ZTE spokesman, in a statement. "At the same time, ZTE is actively co-operating with the US government about the probe [into allegations over] Iran. We believe it will be properly addressed." Another ZTE spokesperson confirmed that the company no longer offers Cisco equipment.

Cisco CEO John Chambers (News - Alert) has refused to discuss the matter in any details, particularly the results of its investigation, but he did say that Cisco will not tolerate sales of its equipment, direct or indirect, to embargoed countries like Iran.

This whole incident comes at a time in which Chinese companies are under severe scrutiny in the U.S. market and could ultimately lead to a complete block on Chinese products in the U.S.

In order to avoid this, ZTE recently proposed third-party validation of its products, including both hardware and software, under the oversight of the U.S. government. Huawei, another Chinese telecoms equipment manufacturer, is facing similar scrutiny not only in the U.S., but worldwide.