Long-term agreements (LTAs) for memory chips may be evolving from tools that stabilize market fluctuations into factors that push prices higher. Driven by AI demand, Samsung Electronics and SK Hynix are accelerating the adoption of multi-year supply agreements. Major customers are willing to pay premiums to secure production capacity, while buyers without contracts may be forced to bear higher costs in a tightening spot market. Analysts suggest that the widespread use of LTAs could systematically raise the overall price level for memory.
How LTAs inversely increase prices: Samsung Electronics stated in its latest earnings call that key customers, anticipating strong AI demand, are actively seeking to lock in medium- to long-term supply volumes, and the company has already signed several multi-year contracts. According to analyst interpretations, while LTAs were originally intended to reduce cyclical industry volatility, in the current supply-constrained environment, contracted parties pay a premium for supply certainty, and non-contracted parties passively accept higher spot prices—both sides simultaneously pushing up price levels.
The current memory market is already a "seller's market," with supply-demand imbalances expected to persist at least until 2028. Analysts predict that if memory prices rise by 50% quarter-on-quarter in Q2, manufacturer profit margins could exceed 80%. Furthermore, the expansion of three- to five-year LTAs is expected to reduce the industry's reliance on cyclical businesses such as mobile phones and PCs.
Increased prepayments and contractual price floors: South Korean memory manufacturers are collectively raising the prepayment ratio for LTAs, which previously averaged below 5% industry-wide. In recent agreements, SK Hynix's LTAs with Microsoft and Google have increased prepayments to 10–30% of the total contract value and include minimum price clauses for the contract period. If buyers fail to purchase the agreed volumes after signing, the prepayment may be forfeited as a penalty.
Specifically, the core of SK Hynix's agreement with Microsoft involves a three-year supply of DDR5 starting this year, with an estimated contract value in the tens of billions of dollars. Negotiations with Google concern a five-year general DRAM LTA, potentially with an additional two-year extension clause linked to the supply of next-generation HBM.
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