Seagate hit with $300M penalty for selling sanctioned storage to Huawei

https://www.theregister.com/2023/04/20/seagate_300million_huawei_shipment_settlement/

by pinewurst • 3 years ago

316 124 3 years ago

Entinel• 3 years ago

it has reached a settlement agreement with the Department that will see it pay $300 million over five years, in quarterly chunks of $15 million.
...Seagate persisted and between August 2020 and September 2021 sold 7.4 million hard drives to China, in 429 transactions worth a combined $1.1 billion.

Useless fine. This is a rounding error to Seagate.

gruez• 3 years ago

0.3B fine on 1.1B of sales might not seem much, but that probably wipes out all their profits from those transactions.

swarnie• 3 years ago

300m fine on 1100m of sales.

If their margins are under 30ish percentage it would wipe out any profit made on the illegal activity. Personally i think its a rather fitting fine and this model should be used more often.....

pc86• 3 years ago

Treble damages always seemed fair to me. Have an independent third party determine the profit made from illegal activity (to avoid, or at least hinder, shady accounting practices). Triple it, and that's the fine. Obviously wipes out all the profit, has a punitive aspect to it including a buffer if they successfully hide some profits, and you can spread the fine out if you want to avoid bankrupting the company.

noobermin• 3 years ago

They had 1.65B net income in last year, and they have to pay 0.06B every year for five years, so it's around 4% of their net income. It's not business ending or severe but it isn't exactly cheap.

Also as the article notes, future years may not be as rosy and it will not be fun having a fixed cost hanging over their head.

jgalt2122• 3 years ago

Indeed, this one will sting for Seagate. That's like a $10B fine for Apple.

manojlds• 3 years ago

I don't know what point you are trying to make with that $10b fine for Apple comparison. We know the number and the % of their income. That's enough without meaningless comparisons.

HybridCurve• 3 years ago

More precisely the percentage was 3.6, which is not great, but not terrible. I've been told it's the equivalent of a few pay raises.

convery• 3 years ago

Indeed, and it's a fine line between "the cost of doing business" and ruining a large company over the decisions by a few people. Would probably have been better to go after the people at the top than fining the company..

josu• 3 years ago

It's possible that the fine was already factored in the sale price. According to that other comment, Huawei had really no other choice that to buy them from an American company.

morpheuskafka• 3 years ago

Maybe this is an unpopular opinion, but 4% of annual income for a nonviolent, political-games type of violation seems quite high to me. Especially considering this was only one sale, and only one product, not their entire income that was involved in the violation.

kstrauser• 3 years ago

The whole point of the fine is punishment. Seagate will have a stronger financial motive to comply with the law. If it's cheaper to risk getting caught and paying a small fine, there's much less incentive not to break the law.

shuckles2• 3 years ago

So what happens to the corporate counsel who advised on the contract in such cases?

monetus• 3 years ago

"The company will almost certainly go after its outside counsel."

Can anyone chime in on this? What liabilities does the counsel likely have?

tiahura• 3 years ago

Potentially, they could be responsible for the 300M.

Segate would have to prove that outside counsel failed to use that degree of skill, care, diligence, and knowledge possessed and used by a reasonable, careful, and prudent attorney acting in the same or similar circumstances.

So, just because the attorney got the wrong answer, doesn’t mean they are automatically liable.

Additionally, depending on the jurisdiction, comparative fault may be an issue. Ie, outside counsel can argue, even if we were negligent, so were you, and it’s X% your fault.

jrochkind1• 3 years ago

Wait, why is it illegal to sell hard drives to China?

DrThunder• 3 years ago

Joke's on Huawei... the drives will all fail early. Seagate is just fighting for freedom by collapsing Huawei with their terrible drives.

unmole3• 3 years ago

Meh. These probably ended up in enterprise storage appliances like OceanStor. From what I remember the software stack did a pretty reasonable job of dealing with disk failures.

nacs• 3 years ago

As an unfortunate owner of 2x 3TB Seagate Barracudas that died within months of purchase, your statement is the truth.

unmole3• 3 years ago

I used to work for Huawei's storage division. When the sanctions hit, the company could no longer buy hard disks from American and Japanese companies. And there weren't any Chinese manufacturers either. Flash storage however was easy to procure. So, the product roadmap was thrown away and we pivoted to All-Flash storage.

Y_Y• 3 years ago

Seagate is officially Irish and does have factories there, maybe they hoped this was sufficient? In any case why not go for a Taiwanese manufacturer?

nradov• 3 years ago

Regardless of where final assembly takes place, if the devices include any US components then they are likely subject to sanctions.

imglorp• 3 years ago

I wonder how much of the mainland static about Taiwan is really about seizing TSMC in particular. It represents too many global IP and fab eggs.

unmole3• 3 years ago

Seagate, Western Digital/Hitachi and Toshiba are the only realistic options.

mardifoufs• 3 years ago

Is there any reason why HDD were sanctioned but not CPUs? Like why grant AMD and Intel exceptions? Did Huawei have some sort of super strategic use for them?

vfclists• 3 years ago

$1.1 billion in sales, $300 million in inflation riddled dollars paid over 5 years, I would say it is a good deal depending on the profit margin.

What are the profit margins on their drives anyway?

user3939382• 3 years ago

In my inexpert opinion these sanctions create pressure for China to enter or expand into the sanctioned markets and thereby create more competition with American companies. It seems very short sighted.

onepointsixC• 3 years ago

China already has been doing that. No need to help them do that.

analyst74• 3 years ago

China is not a single entity. Huawei is not going to choose low quality high price local startup over suppliers with good reputation if they have that choice.

Sanction means those uncompetitive local startups don't have to compete with established players, giving them chance to catch up.

hackernewds2• 3 years ago

Yes. It slows them down.

perihelions• 3 years ago

It's like dumping [0], except in reverse. Artificially increase the prices of our exports to our adversary ⇒ protect our adversary's fledgling industry from competition from us.

[0] https://en.wikipedia.org/wiki/Dumping_(pricing_policy)

tough4• 3 years ago

So Pumping?

adamsb6• 3 years ago

I'd say it's more like reverse protectionism. A protectionist demands that his country consume products made domestically.

The sanctionist demands that other countries consume their own products, or those made from a coalition of countries not bound by the sanctions.

Economists used to be mostly in agreement that protectionism is always a net bad, but in the last couple of decades have realized that carefully crafted protectionism can be used to allow domestic industries to develop to the point where they are able to compete internationally.

inconceivable• 3 years ago

it makes complete sense if you view the world through the lens of: 1. china is incapable of innovation and invention and 2. they only know how to steal stuff and 3. their manufacturing industry only makes cheap plastic crap.

VulgarExigency2• 3 years ago

All 3 things which are demonstrably false, but the american empire seems determined to continue to shoot itself in the foot

chemmail• 3 years ago

Lets not forget, USA became such a superpower with huge help of World War 2. With operation Tizzard. UK was basically cornered with risk of getting overrun by the Axis so they send all their scientific knowledge to the USA less they fall in the wrong hands. This opened up US to all the foundational knowledge it needed to win the war on be one of the few countries not totally reeling after the war to continue progress.

liminal• 3 years ago

If they sold $1.1B in drives, then shouldn't the fine be larger than $1.1B?

rtpg2• 3 years ago

If you’re going off the idea that the fine is based on the value of the gain, then you need to go off of the profit made (bit trickier with staff working multiple projects but hard disks aren’t 100% profit)

intvocoder• 3 years ago

If the fine does not exceed the value of the gain, is there any incentive to comply with the law?

advisedwang• 3 years ago

It's a settlement. Maybe the DoC thought the fine should be $600M but they only had a 50% chance of succeeding at trial; getting a guaranteed $300M win is then rational.

nivenkos• 3 years ago

Gotta love that good old American "Free Trade"... as long as it benefits them.

atlasunshrugged• 3 years ago

Every country limits trade, in general, but especially to countries that are aggressively working against their interest and trying to become a peer competitor when it comes to technology.

paganel• 3 years ago

How does China “aggressively work” against the US? And what’s wrong with becoming a “peer competitor” when it comes to technology? Wasn’t that the essence of a free market?

MSFT_Edging• 3 years ago

Free trade == good when it undercuts local industries and forces dependency on foreign industry.

Free trade == bad whenever we're getting beat at our own game.

Alupis• 3 years ago

It's only free trade so long as all parties play by the same rulebook.

boredumb• 3 years ago

There is no reason to go into the comments of every post that shows a price of the fee a company paid in order to express why you think a company that is fined should be crippled because of it, the point is to deter people not to lay nuclear landmines for companies to be destroyed over. 99% of these comments are just maliciously lashing out about 'corporations' and no consideration that chomping into 5% of net profits has an effect greater than some bonus packages of the management teams (less cigars to chomp!)

jgeada5• 3 years ago

Shouldn't the same logic then apply to people? Yeah, figured as much.

If you can ruin a person's entire life over a "mistake", you can definitely do the same to a company, or even better, to the decision makers at that company. Doing anything else just encourages continued bad behavior. No speculation, we have decades of observational data showing that companies and executives will do pretty much anything for a buck, legal or not.

some_random• 3 years ago

Yeah I think many here would be fine applying the same logic to people.

marginalia_nu• 3 years ago

How about not doing either?

chimpanzee4• 3 years ago

It comes down to self-interest and the balance of power, not morals or human rights or any form of idealism that acts as a soft control of the masses.

Corporations are a faceless entity with tremendous power, both to harm and to benefit.

The average individual lacking comparative capital or influence has no weapon with which to fight and no gift which which to bribe.

Government, the monopolist of violence, wields its power accordingly. Why would it extinguish a benefactor when it can simply crack the whip to keep them in line and remind them of whose hand is on the whip in the first place? Whereas, the larger set of powerless individuals are handled brutally, not because it’s best but simply because it’s expedient and without consequence to the power-holder.

A secondary benefit, intentionally achieved by the most insidious of governments, is that the extinguishment of minor troublemakers removes the seeds from which a population might grow to realize their own latent power via cooperative “trouble-making”.

tivert• 3 years ago

> There is no reason to go into the comments of every post that shows a price of the fee a company paid in order to express why you think a company that is fined should be crippled because of it, the point is to deter people not to lay nuclear landmines for companies to be destroyed over.
Shouldn't the same logic then apply to people? Yeah, figured as much.

Kinda sorta. There's not an exact equivalence. We don't punish every crime with the death penalty. Also, there are a lot more people than there are hard disk manufactures. "Nuking" a hard disk manufacture over a violation to deter others has a lot more downsides for the national community (let's make WD a monopoly as a deterrent?) than "nuking" a person for a violation.

_2d30• 3 years ago

Shouldn't the same logic then apply to people? Yeah, figured as much.

I like that you smugly answered your question for them. Tilt at the windmills and strawmen all you want I guess.

lofaszvanitt• 3 years ago

So there will be chinese hard drives soon on the market.

buran77• 3 years ago

A lot of big companies (like BigTech) usually get away with blatant violations of law or regulations for years, the process of doing something to stop them drags on forever, if it even starts... Except if China is involved. Then 18 months later the whole thing is wrapped and justice is actually served.

sho_hn2• 3 years ago

It's not just China.

I'm in Germany, and you may have heard on the news that we have a lot of refugees/immigrants from places like Syria who we are trying to integrate into our society. A lot of them are very qualified. Some of them have since gotten advanced grad degrees from German universities.

And then we may not be able to hire them or have to severely restrict them at work, e.g. when we use Qualcomm chips which are under US export restrictions.

I don't have a very deep point to make, except to say that the human costs and the stings that come with the state of the world can go far indeed.

ROTMetro6• 3 years ago

Rephrasing your statement, (current) Syrian nationals chose to go into a field (out of how many?) that they knew was greatly restricted without a change to their (current) nationality, and are then restricted. Nothing to due with punishing refugees/immigrants.

Throwaway234089• 3 years ago

A lot of them are very qualified.

That statement is quite in conflict with reality.

Some of them have since gotten advanced grad degrees from German universities.

Hardly any notable amount. It's not the great tragedy you seem to think it is.

ycombinete• 3 years ago

Indeed, totalitarian states are well known for their ability to cut through red tape.

RecycledEle2• 3 years ago

$20 per HDD does not seem like a deterrent. That's probably less than 10% of the sale price.

I wonder if I could smuggle illegal items and pay less than 10% of the sale price when I get caught?

RecycledEle2• 3 years ago

I realize I made a math error.

300 / 7 != 20

einpoklum• 3 years ago

US sanctions are funny: The prime aggressors and occupiers of this planet punishing those who are not sufficiently subservient to them. I don't know how the guy delivering the notice to Seagate of this fine could keep a straight face.

enigma1929• 3 years ago

https://www.nytimes.com/2014/03/23/world/asia/nsa-breached-c...

"even as the United States made a public case about the dangers of buying from Huawei, classified documents show that the National Security Agency was creating its own back doors — directly into Huawei’s networks."

So where is the smoking gun about huawei? We hacked their servers in 2014 so where is the public evidence they're evil / in bed with the CCP?

scrubs2• 3 years ago

Seagate - in this article is skank on parade. I don't think lou gerstner or Berkshire Hathaway guys ever had to go around giving themselves props for honestly.

At at the same time: why in the heck didn't the the prosecutors demand all $300 million upfront? Why take installments? Hell, if Seagate can't pay put them into chapter 11/13 and get a judgement to strip assets or cash or stock until paid. Good lord!

The US' (I'm American) biggest suckers have got to be shareholders. The amount of checks that moron ceo's write on shareholder profit without being fired or facing criminal consequences while defending themselves with more shareholder cash for corporate lawyers is insane.

Folks this is why we got rid of royalty.

Seagate isn't the only one. There's bigger but we've got to start somewhere.

Corporations are out of hand. It's the little things too. Wells Fargo "helped me" by sending out my new CC number (Cc was not working) to all known corps so they could charge me. Nah, they helped themselves and certainly never got my permission.

Seagate hit with $300M penalty for selling sanctioned storage to Huawei

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