Seagate Technology Holdings said in a filing on Wednesday the U.S. government has warned the company that it may have violated export control laws by providing hard disk drives to a customer that a source familiar with the situation identified as Huawei Technologies.
Reuters was the first to report the disclosure on Wednesday
and to identify Huawei as the customer. Huawei is on the U.S. Commerce
Department's entity list and banned from receiving U.S. exports and certain
foreign-made items without government approval.
Seagate was warned in a "proposed charging letter"
it received from the Commerce Department on Aug. 29, according to the filing
with the U.S. Securities and Exchange Commission.
The filing said the company's position is that the hard disk
drives are not subject to the U.S. export regulations, and that it did not
engage in prohibited conduct as alleged by the Commerce Department.
Seagate's filing did not identify the customer. Seagate
paused its shipments to Huawei a year ago, said the source familiar with the
matter.
The Commerce Department declined comment on any potential
pending enforcement matters but a spokesperson said the department is committed
to "fully investigating any allegation of violations" of the rule
restricting certain foreign-made items, adding that it "aggressively
pursues criminal and civil actions related to unauthorized exports to
China."
A spokeswoman for Huawei had no immediate comment. The
Chinese telecommunications equipment maker was placed on the entity list in
2019 for activities deemed contrary to U.S. national security.
Seagate, a Dublin-based company that also operates in
California, said it was cooperating with the Commerce Department and sought to
resolve the matter.
The products at issue were provided to the entity listed
customer and its affiliates between August 2020 and September 2021, according
to the disclosure.
The company said the timing of any final outcome is unclear,
as are the terms. It also could not estimate the range of loss or penalty,
although it said a material impact on the business was possible.
The company could face civil penalties of up to $300,000 per
violation or twice the value of the transaction, whichever is greater, for
administrative charges.
The company hopes to make its case in an upcoming meeting
with the Commerce Department, the source said. It sent an initial response to
the letter in late September and filed more information this week.
Seagate's shares were down 11 percent early Wednesday after
the company reported financial results and disclosed the warning over the
alleged export violations.
At issue is a U.S. regulation that governs the way certain
foreign-made items destined for Huawei become subject to U.S. export
regulations.
The Foreign Direct Product Rule, as revised in August 2020,
restricts companies from shipping items made outside the United States to
Huawei if they are the direct product of certain U.S. technology or software,
or produced by essential equipment that is the direct product of U.S.-origin
software or technology. Such shipments can only be made with a U.S. license.
The rule was designed to cut the global supply of
semiconductors to Huawei.
Seagate's view is that its foreign-made hard drives are not
subject to the restriction, the source told Reuters, because they are neither
the direct product of any U.S. semiconductor technology or software nor of any
equipment that itself is the direct product of any U.S. semiconductor
technology or software.
However, the source said, the Commerce Department’s proposed
charges are based on an interpretation that foreign-made items are subject to
the rule if equipment that is the direct product of U.S. semiconductor
technology or software was used to produce any component of the end-item, no
matter how far removed in the production process.
The hard disk drives are made in China and Thailand and also
do not have enough U.S. content to make them subject to U.S. export rules, the
source said.
The company has not applied for U.S. licenses for the hard
disk drives but has applied for licenses for other items when it determined
they were required, the source added.
Republicans on the U.S. Senate Commerce Committee issued a
report last October that found that Seagate had likely shipped restricted
products to Huawei for as long as a year, giving it a competitive advantage
over Toshiba and Western Digital, the other primary suppliers of hard disk
drives, who said they had ceased shipments to Huawei after the new rule took
effect in 2020.
Western Digital told Reuters in May 2021 it had stopped
shipping to Huawei in September 2020 and applied for a license, which was
pending. The company did not respond to requests for an update and comment.
Toshiba also did not respond to requests for comment.
0 comments:
Post a Comment