Seagate’s hard-drive sales to Huawei result in $300 million fine

Seagate Technology Holdings Plc, the biggest maker of computer hard drives, will pay a US$300 million civil penalty to the US Commerce Department to resolve alleged violations of export controls in selling millions of units to Huawei Technologies Co.

The deal announced Wednesday is the largest stand-alone settlement in the history of the Bureau of Industry and Security, which is in charge of export controls, Commerce said in a statement.

The penalty includes a mandatory multi-year audit requirement and five-year suspended denial order. As part of the settlement, Seagate admitted to the accusations, Commerce said.

The news should be positive for the company, because discussions with investors had indicated that they expected a fine of US$500 million to US$1 billion, Wells Fargo analysts including Aaron Rakers said in a research report. The company first revealed the accusations against it in October.

The company is scheduled to report earnings on Thursday. Seagate shares fell 2.2 per cent to US$62.86 on Wednesday before the announcement.

The penalty is roughly equivalent to a quarter of net income for the company, according to its financial performance over the last few years. Seagate is projected to have a net income of about US$400 million in calendar 2023 as it suffers weaker demand for its products.

The US in 2019 placed Huawei on its Entity List, prohibiting American firms from doing business with the Chinese technology company without getting a government license.

Seagate continued to do so, selling more than 7.4 million hard-disk drives to Huawei without authorisation, Commerce said. It thus violated the foreign direct-product rule of August 2020, which prohibits shipping Huawei items that are the direct result of US technology or software.

The US has been wielding the export-control power of the Commerce Department, headed by Gina Raimondo, as one of its main tools to stifle China’s technological ambitions and bolster national security.

“The Department of Commerce is committed to robust and stringent enforcement of US export controls in every corner of the world,” Deputy Secretary of Commerce Don Graves said in the statement.

Seagate continued to do business with Huawei despite the fact that its only two competitors stopped selling hard-disk drives to the company and entered into a three-year agreement with Huawei, Commerce said.

Seagate repeatedly authorised lines of credit to Huawei totalling more than US$1 billion between January and September 2021, causing an increase in exports of hard-disk drives to Huawei that the company was otherwise unable to obtain, Commerce said.

The company said in a filing that it will pay the penalty in quarterly instalments of US$15 million over five years starting in October. South China Morning Post