Seagate supplied hard drives to Chinese manufacturer Huawei from August 2020 to September 2021, despite Huawei having previously landed on the US embargo list. This decision is now costing Seagate dearly: The company is paying a fine of 300 million US dollars to the US Department of Commerce.
This is the largest fine ever imposed by the Bureau of Industry and Security (BIS) within the US Department of Commerce. The settlement with Seagate came before a court hearing.
7.4 million hard drives for Huawei
The BIS estimates that Seagate sold 7,420,496 hard drives worth US$1,104,732,205 to Huawei for a profit of nearly US$150 million. The penalty payment would therefore be more than twice as high as the profit.
This fits with Seagate’s business figures: In the relevant period, the company generated sales of 2.6 billion to 3.1 billion US dollars per quarter, with profits of 280 million to 526 million US dollars. The operating margins were always between 13.3 and 18.8 percent. Year-to-date, sales, margin and hence profit increased, which indicated higher prices. Most recently, Seagate made a loss of $33 million.
Huawei mainly used the hard drives for servers. The company operates its own cloud, including for users of Huawei smartphones, but also sells complete servers.
Circumvention of export restrictions
To this day, Seagate defends the view that the HDD sales were also permitted under the export restrictions because the hard drives were not manufactured in the USA. The BIS replies that Seagate is a US manufacturer and that US ideas are also found in the foreign-made models – doubts about this representation were already raised in 2021. The two competitors, Western Digital and Toshiba, immediately stopped selling to Huawei after the trade embargo.
In a statement, Seagate CEO Dave Mosley said: “While we were satisfied that we were in compliance with all relevant export control laws at the time of the disk sales in question, we have concluded that reaching an agreement with the BIS and resolving this matter would is the best solution.”
Seagate is paying the fine at $15 million per quarter for five years. In addition, both parties agreed on a multi-year audit obligation and Seagate committed not to sell hard drives to Huawei for the next five years.
(mma)
