Seagate Broke Export Curbs by Supplying Huawei, Senate Republicans Say

A major U.S. data-storage equipment provider violated U.S. export rules by continuing to sell hard-disk drives to Huawei Technologies Co. after the Commerce Department tightened export restrictions last year, a report by a group of Senate Republicans alleged.

Seagate Technology Holdings STX -1.22% PLC supplied a substantial share of the Chinese company’s estimated $800 million worth of annual purchases of hard-disk drives after the tougher restrictions took effect in September 2020, according to the report by Republicans on the U.S. Senate Committee on Commerce, Science and Transportation.

The company didn’t seek a license from the Commerce Department to do so, and continued shipments after its rivals had halted sales to Huawei, the report alleged. The report cited market research by banks, disclosures by the company and committee staffer interviews with Seagate officials.

“By shipping these prohibited products to Huawei, it appears Seagate benefitted from an uneven playing field to the detriment of national security and at the expense of its competitors who abide by the rule designed to combat threats posed by companies with known connections to the Chinese government,” the report said.

It urged a halt to unlicensed shipments of technology to Huawei and called on the Commerce Department to better enforce restrictions on Huawei and “penalize past shipments in violation of this regulation.”

Huawei is losing its edge in the smartphone business as the Chinese tech giant copes with a global chip shortage as well as U.S. sanctions that cut the company off from 5G technology. WSJ reporter Dan Strumpf explains what’s led to Huawei’s current challenges. Photo: AFP via Getty Images

A Seagate spokesman said the company “complies with all laws applicable to its business and operations, including export control regulations.” He said the company doesn’t comment on specific customers.

A Commerce Department spokeswoman said its enforcement arm was “committed to fully investigating any allegation” of export-control violations. She said the agency generally makes public its enforcement actions at their conclusion and would brief Congressional offices after such an investigation.

A Huawei spokeswoman declined to comment on the report’s findings.

Last year, Seagate told investors it didn’t believe it needed a license to continue selling to the Chinese firm. “I don’t see any particular restriction for us in terms of being able to continue to ship to Huawei or any other customers in China,” Gianluca Romano, Seagate’s chief financial officer, said in September 2020, after new export rules on Huawei took effect. “So we don’t think we need to have a specific license.”

At the time, Mr. Romano declined to say what share of the company’s revenue came from Huawei, but said it was under 10%. Fremont, Calif.-based Seagate reported $10.7 billion in revenue in its fiscal year that ended July 2, up 1.6% from the year before.

According to the report, Seagate executives told committee staff members in early October that the company had halted shipments to Huawei, but declined to provide the date that its shipments stopped, the report said. The Seagate spokesman didn’t comment on whether the company had halted its Huawei sales.

The Commerce Department last year placed sweeping export restrictions on Huawei, effectively barring any supplier from shipping products made using U.S. technology without a license, saying the Chinese company poses a national security threat. Huawei has repeatedly denied those allegations and says U.S. restrictions on the company are unjustified.

The restrictions have destroyed a large share of Huawei’s smartphone business, curbed its sales of telecom-equipment products and forced it to develop new business lines.

Still, the Commerce Department has shown willingness to grant licenses to some companies, in particular to companies selling lower-end chips to Huawei. On Thursday, Rep. Michael McCaul of Texas, a Republican, released data showing that the department granted 113 export licenses valued at about $61 billion for suppliers to Huawei between Nov. 9, 2020, and April 20 this year.

Lawmakers from both parties have pressed the Biden administration to maintain a tough policy on China and on Huawei. On Monday, Republicans on the House Foreign Affairs Committee sent a letter to Commerce Secretary Gina Raimondo, urging tougher export controls on semiconductors to China and other issues.

In a statement, Mississippi Sen. Roger Wicker, the senior Republican on the Senate committee behind the Seagate report, said the report underscores the need for stronger monitoring and enforcement of export controls. “Companies need to take this situation seriously by following the law,” he said.

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