Seagate denies it illegally sold hard drives to Huawei

Seagate intends to cut its global headcount by roughly 3,000, or roughly eight percent. While announcing its fiscal Q1 2023 financial results on Wednesday, the biz said declining storage demand forced it to lay off staff.

Meanwhile, the drive maker is fending off allegations it defied US export rules by illegally shipping gear to Huawei.

As our friends at Blocks & Files noted earlier today, Seagate's revenues for the three months to September 30 dropped by over a third year, year on year, to $2.04bn and profits tumbled from $526m down to just $29m for the quarter. Seagate still paid out a dividend of 0.70 per share, mind you.

“Global economic uncertainties and broad-based customer inventory corrections worsened in the latter stages of the September quarter, and these dynamics are reflected in both near-term industry demand and Seagate's financial performance,” CEO Dave Mosley said.

The decision comes after months of declining sales for the world’s largest hard drive maker, which has seen its stock price fall nearly 40 percent since this time last year. The biz now expects revenues to fall further amid a broader decline in tech demand.

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The restructuring and layoffs, which are expected to save Seagate roughly $110 million in the third-quarter of its fiscal 2023, aren’t the only bad news facing the company. In an SEC filing published today, Seagate denied allegations by the US Department of Commerce that it flouted export controls by illegally supplying storage devices to a company on Uncle Sam's Entities List.

Specifically, Seagate said it received a formal complaint – a proposed charging letter (PCL) – from the Commerce Dept's Bureau of Industry and Security (BIS) accusing the drive maker of breaking Uncle Sam's export administration regulations (EAR) as it shipped hard drives to an Entities List company.

The company in question is, surprise, surprise, Chinese telecom equipment giant Huawei, which was added to the verboten list in 2019.

American companies are required to obtain special licenses from the US government to sell certain equipment to or do business with companies or persons on the list, which includes a whole load of Chinese organizations and institutions as well as Huawei, or risk stiff fines. That said, it emerged in August that the Commerce Department approved 94 percent of licenses to ship restricted tech to China.

In any case, Seagate claims it didn't need permission from Uncle Sam to ship its hard drives to Huawei, so it's done nothing wrong.

"The PCL alleges Seagate acted in violation of the EAR by providing Seagate hard disk drives ('HDDs') to a customer and its affiliates listed on the BIS Entity List between August 2020 and September 2021," Seagate's SEC filing reads.

"Seagate has responded to the PCL, setting forth Seagate's position that it did not engage in prohibited conduct as alleged by BIS, because, among other reasons, Seagate's HDDs are not subject to the EAR. The matters raised by the PCL remain unresolved at this time."

If Seagate is found to have ignored US export rules, Reuters reports, the company could face fines of between $300,000 or twice the value of the transaction, whichever is higher. However, it remains to be seen how large a fine the biz may face.

“Seagate is unable at this time to estimate the range of loss and/or penalty, if any, although it is possible that the outcome could have a material impact on our business, results of operations, financial condition, and cash flows,” the company wrote. ®