Seagate To Pay $300m Penalty Over Huawei Exports

Seagate Technology has reached an agreement with the US Commerce Department to pay a $300 million penalty, over the export of hard disk drives (HDDs) to Huawei.

The Seagate agreement with the US Department of Commerce’s Bureau of Industry and Security (BIS) “resolves BIS’s allegations that Seagate’s sales of hard disk drives to Huawei between 17 August 2020 and 29 September 2021 did not comply with the US Export Administration Regulations.”

Huawei is a major telecommunications equipment supplier, and since May 2019 it has been the subject of rounds of US export controls (after being placed on the US Entity List) that have expanded to slow the expansion of China’s semiconductor industry and limit Beijing’s access to advanced technologies.

Export controls

In January 2021 the US Commerce Department (under outgoing President Donald Trump) notified a number of Huawei suppliers that it would revoke some export licences to Huawei and would deny dozens of other applications.

The controls cut off Huawei’s supply of chips from US companies, as well as its access to US tools to design its own chips and have them manufactured by partners.

The US administration also last year banned the sale of new Huawei equipment in the US.

The export restrictions notably forced Huawei to sell off its Honor smartphone division, while its flagship smartphone business shrank dramatically.

Last month founder Ren Zhengfei said that Huawei Technologies had replaced more than 13,000 components in its products with local Chinese-made parts, and had redesigned more than 4,000 circuit boards over the past three years in response to US sanctions.

Hefty penalty

Seagate it seems ran afoul of an August 2020 rule that restricted sales of certain foreign items made with US technology to Huawei.

Seagate was alleged to have shipped over $1.1 billion worth of hard disk drives to Huawei.

Indeed, Seagate is alleged to have shipped 7.4 million drives to Huawei for about a year after the 2020 rule took effect and became Huawei’s sole supplier of hard drives, the Commerce Department said.

Under the terms of the settlement agreement, Seagate has agreed to pay $300 million to the US Department of Commerce, to be paid in installments of $15 million per quarter over the course of five years.

It said the first installment is due in October 2023.

“We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers and our shareholders,” said Dave Mosley, Seagate’s CEO. “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.”

“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,” said Mosley. “We are now moving forward fully focused on executing our strong technology roadmap to support the growing demand for mass data storage solutions.”

National security

The penalty represents the latest in a string of actions by the Biden Administration to keep sophisticated technology from China that may support its military, enable human rights abuses or otherwise threaten national security.

The US Commerce Department has said that the other two primary suppliers of hard disk drives had ceased shipments to Huawei after the new rule took effect in 2020.

It did not name those two other HDD suppliers, but they are understood to be Western Digital Corp and Toshiba Corp.