Cisco cuts ties with ZTE

Cisco Systems has washed its hands of Chinese telecom equipment maker ZTE, Reuters reports, after Cisco determined that ZTE was selling Cisco-branded networking equipment to Iran.

This year, the China-based firm had been reported as selling restricted and banned computer equipment developed by Cisco and other U.S. companies to Iran's telecom firms. According to the publication, ZTE agreed to ship U.S. products -- including Cisco switches -- to firms based in that country last year.

Following investigations conducted by the FBI, the U.S. Commerce Department and the companies that allegedly uncovered the sales, the general counsel of ZTE's Texas-based subsidiary claimed that its parent company tried to cover its tracks, "including possibly shredding documents," according to Reuters.

A criminal probe has been launched by the FBI in response.

David Dai Shu, a ZTE spokesman, said: "ZTE is highly concerned with the matter and is communicating with Cisco. At the same time, ZTE is actively cooperating with the U.S. government about the probe to Iran. We believe it will be properly addressed."

Citing a source close to the matter, Reuters said that although the Cisco-ZTE partnership has been in place for over seven years, it has been "rocky" at times.

In addition, Cisco CEO John Chambers said that the firm doesn't tolerate "direct or indirect" sales to embargoed countries, which includes Iran.

When rival telecom firm Huawei began competing against Cisco in emerging markets five years ago, Cisco saw ZTE as a means to claw back market share by offering cheaper products -- manufactured locally -- through reseller and licensing agreements. However, the partnership has its share of problems, including disagreements over the U.S. market.

In a report released today, a congressional committee has recommended that Huawei and ZTE not be allowed to do business with U.S. companies and government agencies, as the firms pose a security threat because they could aid Chinese espionage. According to reports, the U.S. House of Representatives' Intelligence Committee is expected to say that U.S. mergers and acquisitions should be out of the question, which will no doubt impact both of the companies' growth forecasts.

Both companies deny the allegations.

ZDNet has contacted Cisco and ZTE and will update this report when we receive a response.

The story originally posted as "Cisco ends ZTE partnership over Iran probe" on ZDNet.