SEOUL: The artificial intelligence boom (AI) is changing not only how much memory chipmakers produce, but also how they sell it.
The world’s top three memory chipmakers – Samsung Electronics, SK Hynix and Micron Technology – are increasingly locking customers into long-term supply agreements lasting as long as five years as global tech companies race to secure memory for AI data centres (DCs).
The shift marks a departure from an industry long dominated by quarterly negotiations and short-term orders, potentially softening the boom-and-bust cycle that has defined the memory business for decades.
Long-term agreements (LTA) are not new. But today’s contracts are longer and more binding.
Traditional memory deals were generally quarterly or annual arrangements, with relatively flexible volumes and prices frequently renegotiated with the market cycle.
JPMorgan said in its July analysis that newer LTAs increasingly run for three to five years and include pre-agreed supply volumes, pricing formulas or floors and stronger commitments such as prepayments, collateral or financial guarantees.
Some also use “take-or-pay” provisions, requiring customers to pay for committed volumes even if they ultimately take fewer chips.
Samsung said last month that virtually all major customers were seeking multiyear deals.
It has completed agreements with five major global DC customers and is nearing deals with five other large AI customers.
Once those are completed, Samsung expects LTAs to cover about 60% to 70% of its medium to long-term memory capacity.
SK Hynix said it has wrapped up LTA negotiations with around 10 customers, including key clients, while talks with additional customers are continuing.
Micron, meanwhile, disclosed 16 strategic customer agreements in June, backed by US$22bil in cash prepayments and other commitments, including US$18bil in cash.
The trend is spreading beyond the Big Three.
Sandisk has signed LTAs with eight key DC and edge customers, while Taiwan’s Nanya Technology says such deals now cover about half of its production capacity.
The immediate driver is scarcity.
“Customers now care as much about securing supply when needed as price,” an industry official said, adding that the growing complexity of AI memory such as HBM is also driving the shift.
AI infrastructure investment is lifting demand for high-bandwidth memory as well as conventional server DRAM and NAND, while new semiconductor capacity takes many years and billions of dollars to build.
For customers, LTAs secure supply at a time when shortages are worsening.
For suppliers, they provide better demand visibility, upfront funding and greater confidence to invest in new capacity.
Han Dong-hee, an analyst at SK Securities, described LTAs as a form of “mutual hostage-taking” between suppliers and customers, saying the structure could improve earnings visibility and raise the industry’s profit floor.
That matters for valuations.
Memory stocks have traditionally been discounted because earnings can collapse when falling prices, order cuts and excess inventories hit at the same time.
LTAs cannot eliminate the cycle, but they can cushion the downside.
The protection works both ways.
When prices surge, suppliers tied to earlier contracts may not capture the full upside.
Capacity committed to older products can also limit how quickly production shifts toward newer or more profitable chips.
That trade-off drew attention after SK Hynix lost ground to Micron in the latest DRAM rankings.
Counterpoint Research said Samsung led the market by revenue with a 39% share in the second quarter, followed by SK Hynix at 26% and Micron at 25%.
Counterpoint cited SK Hynix’s earlier HBM LTAs as one factor, saying previously agreed pricing limited its exposure to the recent price rally.
Some also point more to its heavier HBM mix: Conventional DRAM prices rose sharply during the quarter, while HBM pricing was relatively softer amid HBM3E price adjustments and the transition to HBM4.
However, shoppers are increasingly opting for lower-priced items, as spending power has yet to fully recover. — The Korea Herald/ANN
