US computer storage giant Seagate has been fined $US300 million for shipping over 7 million hard disk drives to Huawei despite a Commerce Department ban prohibiting exports to the Chinese tech company. The fine marks the largest penalty lodged against a company for doing business with Huawei since it was added to the trade blacklist and comes amid a rapidly escalating tech war between the US and China.
The Commerce Department claims Seagate sent 7.4 million hard disk drives (HDDs) to Huawei between August 2020 and September 2020. That’s bad timing for Seagate considering the Commerce Department’s restrictions on these specific tech exports to Huawei took effect in early August 2020. During that two-month period, Seagate reportedly raked in $US150 million in profits from the sales.
Seagate CEO Dave Mosley acknowledged the settlement in a statement Wednesday: “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.”
“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,” Commerce Department Assistant Secretary for Export Enforcement Matthew S. Axelrod said in a statement. “Today’s action is the consequence: the largest standalone administrative resolution in our agency’s history.”
Seagate, according to the Commerce Department, decided to maintain its billion-dollar business relationship with Huawei even after its two primary competitors, Western Digital and Toshiba, agreed to stop selling HDDs to Huawei. With them out of the picture, Seagate became the sole source of Huawei’s HDDs. Making matters worse, the Commerce Department alleges Seagate entered into a three-year Strategic Cooperation Agreement with Huawei which gave the US tech company priority over other Huawei suppliers.
“Seagate seized the opportunity and successfully won the big share,” Huawei said, according to Commerce Department charging documents.
Seagate said the deal was in the best interest of the firm and its shareholders. The company noted it will pay off the $US300 ($416) million fine in $US15 ($21) million chunks every quarter for the next five years.
Huawei did not immediately respond to Gizmodo’s request for comment.
US-China tech war shows no signs of cooling down
Huawei and 68 other companies were placed on the Commerce Department’s “entity list” in 2019 following an executive order from then-president turned arrested tech founder Donald Trump. The placement blocked US companies from exporting US-sourced technology and other technology to Huawei which intelligence officials claim was working as an espionage tool for the Chinese government. The Commerce Department expanded those restrictions roughly one year later. And it seems like the sanctions had their desired effect: By 2021, the sanctions were reportedly causing $US30 billion in annual losses to the company’s smartphone business.
“It has caused a lot of damage to us,” Huawei Chairman Ken Hu said in an interview with the BBC
The hefty new settlement proves the Biden administration isn’t interested in easing up on the tech war with China. The president hinted as much during his recent State of the Union address where he said the US was investing in alliances and strengthening security over its technology to compete with China.
“I am committed to work with China where it can advance American interests and benefit the world,” Biden said. “But make no mistake…if China’s threatens our sovereignty, we will act to protect our country.”