It's not clear if this means no Google Play Store or no Android operating system at all. Either way, it's bad for ZTE.
ZTE's has been playing the US market on hard mode in recent months, but now it's looking more like mission impossible.
After ZTE was caught shipping goods to Iran, the US Commerce Department on Monday banned US companies from selling hardware and software to the Chinese electronics company for seven years. Now, a source tells Reuters this could preclude Google for licensing its Android operating system to ZTE.
Alphabet and ZTE were discussing the ban, the publication reports, but no decision has been made as of yet.
The report doesn't specify what Android software Google is barred from selling to ZTE. The Android operating system is open source, which would make a ban unlikely. Even in that case, ZTE could use Android's source code to create a modified OS. Alternately, Commerce Department's ban could apply to Google's Mobile Services suite of apps, which most notably includes the Google Play Store.
"ZTE is aware of the denial order activated by the United States Department of Commerce," the company said in a Tuesday statement. "At present, the company is assessing the full range of potential implications that this event has on the company and is communicating with relevant parties proactively in order to respond accordingly."
The ban, which likely means US players like Qualcomm and Dolby can't sell their components to ZTE for phones, comes after ZTE pleaded guilty in March 2017 to illegally shipping US equipment to Iran and North Korea and agreed to pay up to $1.2 billion in penalties. Part of the settlement required ZTE to take actions against employees who took part in the violations.
The Commerce Department said Monday that ZTE officials lied about reprimanding the employees and even gave some of them full bonuses.
"It's a significant blow for ZTE and some of its key suppliers," said Counterpoint Research analyst Neil Shah. "ZTE ships close to 45 million phones per year and half of the chipsets used in those are from Qualcomm." A restriction from using Android would "be a bigger blow," he added.
The action comes amid mounting pressure on Chinese telecommunications companies and a broader escalation of tariffs from both the US and China. Chinese phone giant Huawei has hit a wall in the US, with federal officials publicly warning against using its phones due to security risks for US telecommunications infrastructure and espionage concerns. AT&T and Verizon have reportedly dropped their plans to sell its products. We broke the news last month that Best Buy would likewise drop all Huawei products, including laptops and smartwatches.
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