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A fine, earnings and new tech for Seagate
Seagate faces a $300 million fine for selling HDDs to Huawei and reported less than stellar earnings, but it continues to press forward on HDD technology.
Seagate Technologies is experiencing some financial hardships this year, but the data storage vendor also continues to push the envelope on HDDs.
On April 19, the company was fined $300 million by the U.S. Department of Commerce for selling hard drives to Chinese multinational technology corporation Huawei, a violation of the Entity List. Seagate has agreed to pay the fine -- the largest the department has ever issued -- in $15 million quarterly installments over the next five years.
The following day, on April 20, Seagate reported a loss for its third quarter of 2023, which ended on March 31. Its earnings saw a drop in revenue and a net loss of $433 million.
Seagate's earnings is another indicator of the decline that the hard drive market -- which tends to be cyclical -- has been experiencing lately, according to Dave Raffo, an analyst at Futurum Group.
"As the hard drive market goes, so goes Seagate," he said.
The company also began shipping 22 TB HDDs on April 13 and said its heat-assisted magnetic recording (HAMR) 30 TB HDDs will be out this fiscal quarter. HAMR technology works by heating the storage media, which increases capacity through smaller bits that remain stable.
Financial hardship
The Department of Commerce's Bureau of Industry and Security (BIS), its enforcement arm, found that Seagate sold $1.1 billion worth of HDDs to Huawei between August 2020 and September 2021.
"We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers and our shareholders," Seagate CEO David Mosley said in a statement.
The settlement likely won't affect HDD customers, according to Ray Lucchesi, president of Silverton Consulting. Vendors have insurance for certain issues, although legal malfeasance might not be covered.
"[Western Digital] will pick up any slack from Seagate [for customers]," Lucchesi said. "In a year or so, Seagate ought to be up and running full steam."
Seagate became Huawei's sole supplier after its two competitors stopped shipping drives to the Chinese multinational, according to a press release BIS issued on April 19. The agency said Seagate transferred more than 7.4 million HDDs to Huawei without BIS authorization.
"Even after Huawei was placed on the Entity List for conduct inimical to our national security, and its competitors had stopped selling to them due to our foreign direct product rule, Seagate continued sending hard disk drives to Huawei," said Matthew Axelrod, assistant secretary for export enforcement for the Department of Commerce, in a statement.
Government fines aren't the only thing Seagate is combating currently.
On April 20, Seagate reported its third-quarter earnings, which fell on the low end of the revenue guidance range, according to Mosley. Seagate also laid off 480 employees. He attributed the sluggish performance to high HDD inventory levels for the largest customers.
Then in April, the company filed an 8-K that informed stockholders of the board of directors' approval for temporary executive salary reductions. Beginning May 1, Mosley as well as the CFO will have salaries reduced by 100%; the chief commerce officer's salary will be reduced by 50%. The company also disclosed that Jeffrey Nygaard, executive vice president of operations and technology, will depart the company.
Although temporary, this pay suspension is a big contribution, according to Edward Burns, an analyst at IDC. "It is putting money where your mouth is in a good way," he said.
Still, Burns added, "They are not giving back their stock grants or anything -- and that is a big part of their compensation."
New technology
Despite the financial cloud, the vendor is also continuing to push forward on new technology. Seagate recently released a 22 TB HDD, catching up to its main competitor, Western Digital. The drive is a conventional magnetic recording HDD aimed at NAS, DAS and RAID environments.
Mosley also said its HAMR technology will be launched this quarter as part of its Corvault high-performance block storage system. Samples have already shipped to select customers.
"They announced the release of new technologies, including HAMR, but that doesn't mean it is moving the needle for them on their results," Burns said.
Raffo added that HAMR HDD technology works off a single-source supplier, and most customers don't want to buy from a single source due to interruptions or price negotiations.
"Seagate is the market leader in hard drives, but are people buying enough hard drives?" Raffo asked. "That market has already dropped."
Adam Armstrong is a TechTarget Editorial news writer covering file and block storage hardware and private clouds. He previously worked at StorageReview.com.
