Seagate to pay $400 million penalty for shipping Huawei 7.4 million hard drives
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Seagate shipped 7.4 million hard disk drives to Huawei for about a year after the 2020 rule that restricted sales of certain foreign items made with US technology took effect.
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Washington – Seagate Technology Holdings, the world’s biggest maker of computer hard drives, will pay a US$300 million (S$400 million) civil penalty to the US Commerce Department to resolve alleged violations of export controls
The deal announced on Wednesday is the largest stand-alone settlement in the history of the Bureau of Industry and Security, which is in charge of export controls, the Commerce Department said in a statement.
The penalty represents the latest in a string of actions by Washington to keep sophisticated technology from China that may support its military, enable human rights abuses or threaten US security.
The US government said Seagate wrongly interpreted the foreign product rule to require evaluation of only the last stage of its manufacturing process rather than the entire process.
Seagate made drives in China, Northern Ireland, Malaysia, Singapore, Thailand and the United States, the order said, and used equipment, including testing equipment, subject to the rule.
As part of the settlement, Seagate admitted to the accusations. It also agreed to three audits of its compliance programme, and is subject to a five-year suspended order over its export privileges.
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 said in a research report. The company first revealed the accusations against it in October.
Seagate was scheduled to report earnings on Thursday. Its 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, based on its financial performance over the last few years. Seagate is projected to have a net income of about US$400 million in 2023 as it suffers weaker demand for its products.
The United States in 2019 placed Huawei on its Entity List, prohibiting American firms from doing business with the Chinese technology company without getting a government licence.
Seagate continued to do so, selling more than 7.4 million hard disk drives to Huawei without authorisation, the Commerce Department said. The company thus violated the foreign direct product rule of August 2020, which prohibits shipping to Huawei items that are the direct result of US technology or software.
The US has been wielding the export control power of its Commerce Department as one of its main tools to stifle China’s technological ambitions and bolster national security.
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, the Commerce Department 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, the department said.
Seagate said in a filing that it will pay the penalty in quarterly instalments of US$15 million over five years starting in October.
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