Seagate yesterday agreed to pay a $300 million fine for selling hard disk drives to Huawei, settling US government officials' allegation that shipments to the Chinese company violated export controls imposed in 2020. The fine is "the largest standalone administrative penalty" ever issued by the US Department of Commerce's Bureau of Industry and Security (BIS), the agency said.

"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.

As part of the settlement, "Seagate admitted to the conduct set forth in the Proposed Charging Letter involving Seagate US and Seagate Singapore," the BIS said. Seagate violated the rule "by ordering or causing the reexport, export from abroad, or transfer (in-country)" of 7.4 million disk drives to Huawei without BIS authorization, the agency said.

Despite BIS imposing its rules in August 2020, "Seagate announced it would continue to do business with Huawei" in September of that year, the agency said. Huawei's other suppliers, Western Digital and Toshiba, both stopped shipments to Huawei after the August 2020 rule took effect, as Reuters noted.

"The two other companies capable of making HDDs promptly—and publicly—indicated that they had ceased sales to Huawei," the BIS said. "Of the three, only Seagate refused to stop sales and transactions involving Huawei. BIS's $300 million monetary penalty is more than twice what BIS estimates to be the company's net profits for the alleged illegal exports to or involving Huawei."

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7.4 million drives worth $1.1 billion

After announcing that it would continue doing business with Huawei, "Seagate entered into a three-year Strategic Cooperation Agreement with Huawei, naming Seagate as 'Huawei's strategic supplier' and granting the company 'priority basis over other Huawei suppliers,'" the BIS said. Seagate supplied 7.4 million hard disk drives valued at more than $1.1 billion to Huawei between August 17, 2020, and September 29, 2021, the agency said.

Seagate also agreed to a multi-year audit requirement and a five-year suspended denial order. A denial order would revoke Seagate's export privileges but won't be enforced as long as Seagate complies with the settlement. The denial order "is currently suspended and will be waived five years after the date of the order issued under the Settlement Agreement, provided that Seagate has made full and timely payments under the Settlement Agreement and timely completed the audit requirements," the company said.

Seagate said it chose to settle with the federal agency because of "a number of factors, including the risks and cost of protracted litigation involving the US government, as well as the size of the potential penalty and the company's desire to focus on current business challenges and long-term business strategy."

Seagate CEO Dave Mosley said the settlement "is in the best interest of Seagate, our customers and our shareholders... 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."

Seagate agreed to pay the $300 million over five years with quarterly installments of $15 million each. After recording a $300 million settlement penalty in its earnings, Seagate reported a net loss of $433 million on $1.86 billion in revenue in the quarter ending March 31.