Seagate hit with $300m penalty for selling sanctioned storage to Huawei

The United States Department of Commerce has stung Seagate for $300 million for selling disk drives to Huawei, despite the Chinese company’s presence on its list of entities to which certain products can’t be sold without first securing a license.

In 2021 Seagate told our sibling publication Blocks and Files it always stays on the right side of the law. But in October 2022 the company notified investors [PDF] that the Department of Commerce’s s Bureau of Industry and Security (BIS) had sent it a letter alleging violations of the U.S. Export Administration Regulations.

Seagate again insisted it complied with all relevant rules, and that in any case its hard disk drives were not covered by export bans.

That position has now been found to be wrong: Seagate on Wednesday posted a filing [PDF] that states it has reached a settlement agreement with the US government that will see the manufacturer pay $300 million over five years, in quarterly chunks of $15 million.

The filing reveals the specifics of the Dept of Commerce’s complaint: after the 2019 addition of Huawei to its entity list, two of the world’s three hard disk makers – a reference to Toshiba and Western Digital – announced they would stop selling to Huawei. Seagate persisted and between August 2020 and September 2021 sold 7.4 million hard drives to China, in 429 transactions worth a combined $1.1 billion.

Making matters worse, Seagate’s manufacturing processes used third party products that also need licenses before they can be put to work producing kit sold to China.

But wait, there’s more: in December 2020 Seagate also signed a three-year Strategic Cooperation Agreement with Huawei that earned it the status of a “strategic supplier”.

Huawei had no other hard disk suppliers at the time.

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Seagate CEO Dave Mosely has spun the settlement as a demonstration the company is an upstanding corporate citizen.

“Integrity is one of our core values, and we have a strong commitment to compliance as evidenced by our global team of international trade compliance and legal professionals – complemented by external experts and outside counsel,” he said in a press release. “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 engaging with BIS and settling this matter was the best course of action.”

The matter is so serious Seagate has brought its third quarter results announcement forward by five days to Thursday, April 20, and warned investors there will be a $300 million hole in its numbers. Seagate’s last full financial year saw it win $11.66 billion in revenue and produce $1.65 billion of net income, but recent quarters have been less kind.

This settlement will therefore sting.

Now for the fallout: it’s conceivable senior figures at Seagate may be moved on because of this mess. The company will almost certainly go after its outside counsel.

And the rest of the tech industry has an example of the US government being very willing to enforce its trade sanctions on China. ®