Seagate Expertise Holdings mentioned in a submitting on Wednesday that it has been warned by the U.S. authorities that the corporate could have violated export management legal guidelines by offering onerous disk drives to a buyer on a commerce blacklist.
The client is China’s Huawei, a supply conversant in the matter instructed Reuters, which is on the U.S. Commerce Division’s entity checklist and banned from shopping for U.S. exports and sure foreign-made objects with out authorities approval.
Seagate was warned in a “proposed charging letter” it obtained from the Commerce Division on Aug. 29, in keeping with the submitting with the U.S. Securities and Alternate Fee.
However the firm’s place, in keeping with the submitting, is that the onerous disk drives will not be topic to the U.S. export rules, and that it didn’t have interaction in prohibited conduct as alleged by the Commerce Division.
The Commerce Division didn’t instantly reply to a request for remark.
Seagate, a Dublin-based firm that additionally operates in California, mentioned it was cooperating with the Commerce Division and making an attempt to resolve the matter.
The merchandise at problem have been supplied to the entity listed firm and its associates between August 2020 and September 2021, in keeping with the disclosure. The submitting didn’t establish the shopper on the checklist.
The corporate paused its shipments to Huawei a yr in the past, the particular person mentioned.
Seagate mentioned the timing of any closing final result is unclear, as are the phrases. It additionally couldn’t estimate the vary of loss or penalty, though it mentioned a cloth influence on the enterprise was attainable.
The corporate may face civil penalties of as much as $300,000 per violation or twice the worth of the transaction, whichever is bigger, for administrative costs.
The corporate hopes to make its case in an upcoming assembly with the Commerce Division, the supply mentioned. It despatched an preliminary response to the letter in late September and filed extra info this week.
At problem is a U.S. regulation that governs the best way sure foreign-made objects destined for Huawei develop into topic to U.S. export rules.
The International Direct Product Rule, as revised in August 2020, restricts corporations from delivery objects made outdoors the USA to Huawei if they’re the direct product of sure U.S. know-how or software program, or produced by important gear that’s the direct product of U.S.-origin software program or know-how. Such shipments can solely be made with a U.S. license.
The rule was designed to chop the worldwide provide of semiconductors to Huawei, which was positioned on the entity checklist in 2019 for actions opposite to U.S. nationwide safety pursuits.
Seagate’s view is that its foreign-made onerous drives will not be topic to the restriction, the particular person mentioned, as a result of they’re neither the direct product of any U.S. semiconductor know-how or software program nor of any gear that itself is the direct product of any U.S. semiconductor know-how or software program.
Nevertheless, the particular person mentioned, the Commerce Division’s proposed costs are primarily based on an interpretation that foreign-made objects are topic to the rule if gear that’s the direct product of U.S. semiconductor know-how or software program was used to supply any part of the end-item, regardless of how far eliminated within the manufacturing course of.
The onerous disk drives are made in China and Thailand and likewise should not have sufficient U.S. content material to make them topic to U.S. export guidelines, the particular person mentioned.
The corporate has not utilized for U.S. licenses for the onerous disk drives however has utilized for licenses for different objects when it decided they have been required, the particular person added.
Republicans on the Senate Commerce Committee issued a report final October that discovered that Seagate had seemingly shipped restricted merchandise to Huawei for so long as a yr, giving it a aggressive benefit over Toshiba (6502.T) and Western Digital (WDC.O), the opposite major suppliers of onerous disk drives.
Huawei didn’t instantly reply to a request for remark.