Seagate hit with $300 million penalty for continuing $1 billion relationship with blacklisted firm Huawei, despite U.S. export controls

Computer storage company Seagate will pay a $300 million penalty for allegedly continuing an unauthorized $1.1 billion relationship with Chinese technology firm Huawei after the company was added to a U.S. trade blacklist in 2020.

The $300 million settlement, announced by the Department of Commerce on Wednesday, is the largest ever imposed by Commerce’s Bureau of Industry and Security, which enforces export controls against blacklisted companies like Huawei.

Federal regulators said Seagate was Huawei’s sole provider of hard drive disks, or HDDs, resulting in around $150 million in profit for the hard drive maker.

Seagate shipped over 7.4 million HDDs to Huawei from Aug. 2020 to Sept. 2021, federal regulators said. Neither Huawei nor Seagate made an apparent effort to hide their relationship, according to federal charging documents. “Seagate well seized the opportunity and successfully won the big share,” Huawei allegedly said.

Seagate also allegedly extended lines of credit totaling $1 billion to the Chinese company. Those lines of credit allowed Huawei to order an “increasing volume” of HDDs, federal regulators said, that Huawei wouldn’t have been able to pay for otherwise.

“All the while, Seagate’s competitors declined similar exports,” a Commerce Department press release said.

Even after export controls were imposed, a senior Seagate executive publicly justified the continued relationship with Huawei, regulators alleged. “I don’t see any particular restriction for us,” the executive reportedly said.

Seagate prioritized its relationship with Huawei over at least one U.S. customer, federal regulators alleged, with one executive writing that the company “moved supply to support China,” even after export controls had been imposed.

“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.

“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 CEO Dave Mosley said in a statement.

Seagate shares slipped a little over 7% on Thursday, after reporting disappointing third-quarter results.

Seagate confirmed that it had settled with the Commerce Department but did not offer further comment beyond the company’s press release.

Huawei did not immediately respond to a request for comment.