Seagate fined $300 million for selling hard drives to sanctioned Huawei
Seagate believes it broke no lawsBy Rob Thubron
In brief: Companies tempted to do business with sanctioned Huawei might want to look at Seagate and think twice. The storage giant has been hit with a $300 million fine by the United States Department of Commerce for selling $1.1 billion worth of disk drives to the Chinese firm.
It was during 2019 when the Trump administration placed Huawei on the Entity List, a trade blacklist that prevented the sale of US goods to the company over national security concerns.
But last October, Huawei notified investors that the Department of Commerce's Bureau of Industry and Security (BIS) had sent it a letter alleging violations of the US Export Administration Regulations. Seagate said that it did not engage in the prohibited conduct alleged in the letter, claiming that, among other things, its HDDs were not covered by the export bans.
But Seagate's confidence appears to have been misplaced. The company posted a filing confirming that between August 2020 and September 2021, it sold approximately 7.4 million HDDs, valued at roughly $1.1 billion, to Huawei and its entities. Seagate became Huawei's sole supplier of hard drives despite the other two primary suppliers – Western Digital and Toshiba – ceasing shipments after the sanction rules took effect.
Seagate has now agreed to pay $300 million to the US Department of Commerce in quarterly installments of $15 million over the course of five years beginning October 31. It has also agreed to three audits to ensure it complies with export control laws and is subject to a five-year suspended order denying its export privileges.
Even after "its competitors had stopped selling to them [...] Seagate continued sending hard disk drives to Huawei," Matthew Axelrod, assistant secretary for export enforcement at the Commerce Department's Bureau of Industry and Security, said in a statement. "Today's action is the consequence." He added that the penalty was the largest imposed by the agency not tied to a criminal case.
Seagate had claimed that its drives were not subject to export controls as they were foreign-made and not directly produced by US equipment, but their manufacturing process used third-party products that require licenses to make China-bound tech.
"While we believed we complied with all relevant export control laws at the time we made the hard disk drive sales at issue, we determined that [...] settling this matter was the best course of action," Seagate CEO Dave Mosley said in a statement.
As a result of the fine, Seagate has brought its third quarter results announcement forward by five days and will report them before the market opens. Investors have been warned that the $300 million fine will have an impact on its results. The Reg notes that the fallout will likely see several senior Seagate executives leaving the company, and it will almost certainly go after its outside counsel.