Seagate To Pay $300 Million Penalty For Shipping Huawei 7 Million Hard Drives (reuters.com) 66
An anonymous reader quotes a report from Reuters: Seagate 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 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.
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 were not identified, Western Digital and Toshiba were the other two, the U.S. Senate Commerce Committee said in a 2021 report on Seagate.
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 were not identified, Western Digital and Toshiba were the other two, the U.S. Senate Commerce Committee said in a 2021 report on Seagate.
In other words . . . (Score:5, Insightful)
Seagate still made money on the deal so there is no penalty. Good to know laws can be broken and suffer no penalty.
Re:In other words . . . (Score:5, Insightful)
Comment removed (Score:4, Insightful)
Re:In other words . . . (Score:4, Insightful)
I think the point would be that if it is supposed to be a penalty, it shouldn't even be a matter of debate whether it *might* be profitable. There''s too much room for financial shenanigans to tweak apparent margin to control a penalty if a penalty is based on margin. Oh, we were charged 99.5% of our revenue by one of our own subsidiaries, so we have 0.5% margin.
If they recognized a billion dollars of revenue, then a penalty should be in the same ballpark at least. Yes, they would lose a whole lot more money than they made, but that would be the point of a penalty.
30% might be over their profit, but it's close enough that perhaps the risk/reward calculation is favorable to trying to get the profit given an uncertainty of getting a penalty if caught.
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Yes. The punishment for violating these sorts of sanctions should be so severe that it could spell Chapter 7 bankruptcy or equivalent to the violators, especially when the violations are wanton.
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Sound great. Except that bankrupting one of your own companies isn't really in the national interest either.
Maybe a better punishment is to throw executives in prison, starting with the ones who authorized the decision to violate the law.
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I think you misunderstood. My point is that if it's supposed to be a fine, then it it should be undeniably obviously unprofitable. There's no debate because "Yeah, $1.5 billion fee couldn't have been profitable for $1.1 billion revenue". The fact that there is room to say "Well, they *could* have had 35% margin and in such a case they still came out at top" means that it wasn't an effective penalty. Quibbling about whether they were 5% margin or 50% margin should be beside the point, the penalty should
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If it wipes out the revenue from these transactions, that would be absolutely determining that it is unambiguously unprofitable. If you are saying it should be constrained by margins, as they self-declare them, that creates a gigantic loophole for moving things around. My point is that it shouldn't be possible to be uncertain if it was unprofitable, it should be *certain* that it is unprofitable by covering the whole revenue for the transactions in question.
I did mean wipe out the revenue, not profit, of t
Re: In other words . . . (Score:2)
Wait so you mean when they fine John Public say, $250 for running a red light, they don't mark that down to a percentage he gets paid? What???
It's just a flat fine made intentionally painful and prohibitive?!!
We can't do that to our elite! It might be uncomfortable and that's just not right. Pish, having them pay punitive fines like a commoner.
This should be really really simple. "How much did you make last year? Cool, we want 20% off the top. Do it again and it's 30%... and if we find out you've been f
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Well is if Segate goes bankrupt somebody will probably buy it and start making drives from that if they are fundamentally profitable.
Businesses aren't sentient.
Agreed but they are given rights of individuals like free speech, so under those rules why wouldn't punish them accordingly. If an individual knowingly traded a band item say drugs they would be sent to jail, especially a billion dollars worth of drugs.
I personally prefer punishments that punish the individuals involved, for example fine imprison upper management, or confiscat
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Does paying a fine count as an "expense" in accounting? If so, that'll just write it off and pay fewer taxes.
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These type of low penalties seem to only apply to companies, remind me again whats the penalty for downloading a movie relative to the price?
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Not so much for Huawei. If only one manufacturer will sell to them then they're stuck dealing with an effective monopoly.
And... Seagate knew that. I wonder if they factored it into their pricing?
Hard drives are a meaningless commodity (Score:2)
That the export restrictions prohibit hard drive sales is f*cking ridiculous.
The USA's more xenophobic politicians, who seem to wield the power these days, should f*cking grow up and get with the 21st century.
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$300 million is likely more than profit margins (Score:2)
Seagate announced their third quarter report [seagate.com] today. Gross margins were 17.2%, compared to 28.8% from a year ago. $300 million out of $1.1 billion is around 27%, which is around what the quarterly gross margins were last year.
And those are gross margins. Profit margins are even lower. It's possible that the specific models sold to Huawei had higher margins. However, HDDs generally don't have high margins.
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Re:In other words . . . (Score:4, Insightful)
It's possible Huawei paid a premium to avoid sanctions. Do we know?
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Are spinning disks put in anything new other than storage arrays? Everything we buy now is SSD of some sort apart from bulk storage at which point $150 for a drive is quite cheap. 16TB spinners are twice that price retail for example. We still have lots of spinners in older servers etc. but a brand new machine no way. When it comes to a desktop you have to be idiotic to use anything but an SSD unless you need a bunch of bulk storage at which point $150 would be a very cheap drive retail.
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Of course there is, they where selling it illegally to Huawei, under an export ban they could have quite easily said we are taking a risk we need extra profit. Just like China is probably screwing over Russia.
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Your math is wrong, how did you come to 0.02%? The fine is about 30%, as in way more than their possible profit margin. As for jail time, they maybe had a solid argument about being lack of clarity on what is and what isn't affected by sanctions, as some exports are still allowed.
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Worse still this means that in a few years time China will be mass producing hard drives at lower cost than Seagate can.
They are already making SSDs. Mostly low end stuff, but it works fine for most people, and they have high end tech if you want it. The US and Japan could have had that market to themselves for as long as it lasts, but now China has a reason to throw money as replacing them.
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Seagate still made money on the deal so there is no penalty.
Very unlikely. The $1.1billion represents a retail figure and does not represent the profit margin on HDDs which is well in the single digit percent.
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From the linked article :
''Seagate's $300 million penalty is due in installments of $15 million per quarter over five years, with the first payment due in October. It also agreed to three audits of its compliance program, and is subject to a five-year suspended order denying its export privileges.
So it's going to be interest free payment of much smaller amounts over the next 5 years.
So, how much is it really going to be (in today's dollars) after all the inflation in the next few years?
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The loss of export privileges is the main penalty. Not the $300m.
The money is just an extra slap to make sure they didn't make any or enough profit to make this worth doing.
They're going to be fucked in much bigger ways without export rights.
Re: In other words . . . (Score:2)
They got fined about $4.50 a drive, hardly a deterrent.
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Try again. Use a calculator next time.
Seagate scandal (Score:5, Insightful)
Re:Seagate scandal (Score:5, Funny)
Yup, haven't seen it used correctly since Watergategate.
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technically the 2nd time
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#seagategate
Why am I not surprised... (Score:2)
... that Seagate is the most evil harddrive company?
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IDK if I can say MOST evil, don't forget WD's SMRgate. big companies are evil, period.
Seagate, you say? (Score:5, Funny)
If what they provided is anything like the couple of drives I got from them, Huawei is fscked.
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Damn, you beat me to it.
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Oh, seagate, how the mighty have fallen. Back in the day they were the go-to company for quality data storage.
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Yeah. I remember when they were the last one to still have a 5-year warranty, before it turned into "5 will get you 10 the drive comes out of the box dead"
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Thanks for a genuine "LOL" moment.
When the right government officials get paid. (Score:5, Insightful)
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The rules become very flexible and profitable.
So they didn't pay off the right people then? I mean $1.1bn is a valuation based on retail value. Add to it that Huawei will have paid less thanks to bulk purchases, and add to that the profit margins for a HDD typically being single digit percent of RRP and there's no way Seagate came out on top here.
Let them eat Barracuda (Score:4, Funny)
Allowing Seagate to keep supplying them Barracuda Hard Drives would be even better sabotage of Huawei business.
Re:Let them eat Barracuda (Score:5, Interesting)
Allowing Seagate to keep supplying them Barracuda Hard Drives would be even better sabotage of Huawei business.
Nah, Huawei uses Specially marked drives, with special firmware seagate makes just for them. The closest you can get to generic Seagates in Huawei storage systems is some generic Exos enterprise drives in the lower end storage systems they produce.
No barracudas or consumer drives in the enterprise storage systems*
* I should know, I was technical trainer for their storage systems.
stupid all the way around (Score:2)
Secondly, Huawei would be better off using locally made flash drives.
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If Made in China - how do you ship? (Score:2)
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This was Seagate's argument- they said the ban only covered final assembly (which is done off shore). Commence Dept said, no, it's the entire supply chain including the US bits.
Seagate typically states around a 30% margin. I expect this deal was less so they lost money here. Looks like they will do another layoff that is 2x larger than the one they did last year.
greedy seagate (Score:2)
Quarterly profits (Score:3)
Looking back a year or two, a quick search suggests that $300M is around what their quarterly profits are when things are going well. They're losing money right now.
Another way of looking at it is that it's 2.4% of the company's market value or $1.45/share with it trading at $60 now. (My numbers have some sloppy rounding.) It would have been a lower percentage at the time it was calculated, as the stock has dropped due to poor results that were just announced (I don't know if this $300M was part of the poor results).
Toshiba could becomoe Huawei's sole supplier... (Score:2)
... if they wish... The profits could be handsome!
You see, Toshiba is a Japanese company, and through mergers, acquisitions and divestments, their HDD division comprises part of the technology stacks of toshiba itself, Fujitsu's and HGST (itself the fusion of Hitachi and IBM). Most of that stack is Japanese as well.
If they can make a product line which is 100% USoA technology free, they could sell to all manner of USoA sanctioned entities, Iran, Russia, China, the sky is the limit. After all, if you are the
Still a lot cheaper (Score:3)
If they include the penalty in the price, it is still cheaper than what I need to pay here in the EU. Every disk costs twice as much for some reason.
none of the U.S.'s business (Score:1)
we're seeing a shift globally away from US bullying - precisely because of this sort of behavior.
Enjoy the war, the peace will be terrible.
fine (Score:2)
joke's on huawei (Score:2)
The joke is on Huawei, because most of those Seagate drives will fail in short order.
Not necessarily good. (Score:2)
Why are we still screwing over China? (Score:1)
That was a Trump policy and, was there ever any reason for it? The government has some weird panic hard-on for TikTok, ok, because someone might discover which Americans love puppies, or something. Or is the whole alleged issue due to bribes from Facebook?
This just seems to be some rabid attempt at cranking up a new Cold War. How is this good for anyone?
I mean, in the long term, it will be great for the Chinese, who now have incentive to build up their own production of things they used to buy from us.
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Yep. Semiconductors are a great example. Prior to the US imposing sanctions, the Chinese government didn't have any special policies regarding the industry. But within months of the first sanctions China established a crash program to develop a tech stack that will consist of 100% domestically owned IP. It created three institutes of technology dedicated to churning out the 10s of thousands of workers the industry will need, and took over the business divisions impacted by the sanctions and dedicated th