Seagate’s efforts to sell hard disk drives to China’s Huawei, despite US export controls, has resulted in a $300 million fine from the Commerce Department.
The fine comes from the Commerce Department’s Bureau of Industry and Security, which found Seagate in violation of US export controls against Huawei.
In 2020, the Commerce Department expanded export restrictions against Huawei for trying to obtain advanced technologies to allegedly undermine US national security. However, California-based Seagate continued to sell the storage drives to the Chinese vendor in what amounted to a billion-dollar deal, “resulting in Seagate becoming Huawei’s sole source provider of HDDs.”
“Even after Huawei was placed on the Entity List for conduct inimical to our national security, and its competitors had stopped selling to them due to our foreign direct product rule, Seagate continued sending hard disk drives to Huawei,” Assistant Secretary for Export Enforcement Matthew Axelrod said in a statement.
In response, the Commerce Department is cracking down on the US company. The $300 million fine is the “largest standalone administrative penalty” from the Bureau of Industry and Security.
Seagate ended up exporting a whopping 7,420,496 HDD drives to Huawei between August 17, 2020, and September 29, 2021, after the export controls came into place. The US estimates the total value of the sold HDD drives at $1.1 billion.
So naturally, readers may wonder if Seagate made a profit from the sales, despite the $300 million fine. However, the Commerce Department notes the resulting penalty is “more than twice what BIS estimates to be the company’s net profits for the alleged illegal exports to or involving Huawei.”
As a result, Seagate took at least a $151 million loss on the whole venture. The company also needs to undergo audits and faces a “denial order,” which can activate and prevent Seagate from exporting products, until it pays the $300 million fine over a period of five years.
In a statement, Seagate said: “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 company also decided to pay the settlement while considering factors including “the risks and cost of protracted litigation involving the US government, as well as the size of the potential penalty.”
Huawei didn’t immediately respond to a request for comment.