Seagate to pay US$300 million penalty for shipping Huawei 7 million hard drives

Seagate Technology Holdings STX.O has agreed to pay a $300 million penalty in a settlement with U.S. authorities for shipping over $1.1 billion worth of hard disk drives to China’s Huawei in violation of U.S. export control laws, the U.S. Department of Commerce said on Wednesday.

Seagate sold the drives to Huawei between August 2020 and September 2021 despite an August 2020 rule that restricted sales of certain foreign items made with U.S. technology to the company. Huawei was placed on the Entity List, a U.S. trade blacklist in 2019 to reduce the sale of U.S. goods to the company, amid national security and foreign policy concerns.

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

Seagate 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.

The other two primary suppliers of hard drives ceased shipments to Huawei after the new rule took effect in 2020, the department said. Though they are not identified, Western Digital and Toshiba are the other two, the U.S. Senate Commerce Committee said in a 2021 report on Seagate.

Even after “its competitors had stopped selling to them … Seagate continued sending hard disk drives to Huawei,” Matthew Axelrod, the Commerce Department’s assistant secretary for export enforcement said in a statement. “Today’s action is the consequence.”

Seagate’s position was that its foreign-made drives were not subject to U.S. export control regulations, essentially because they were not the direct product of U.S. equipment.

In an order issued on Wednesday, the government said Seagate wrongly interpreted the 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.

In August, the U.S. Department of Commerce sent the company a “proposed charging letter,” warning the company that it may have violated export control laws. The letter kicked off some eight months of negotiations.

Reuters broke news of the charging letter in October. Seagate’s $300 million penalty is due in installments over five years. It also agreed to three audits of its compliance program, and is subject to a five-year suspended order denying its export privileges.

Shares of Seagate edged higher after news of the settlement. The company did not immediately respond to a request for comment.