Samsung Electronics and SK Hynix have decided to move away from the short-term supply contract model, which was based on annual or quarterly agreements, and are now requiring major global technology clients to sign long-term supply agreements (LTAs) lasting three to five years. This shift signals a fundamental restructuring of the business logic in the memory industry.
According to reports, starting this year, Samsung will apply a minimum three-year LTA framework to all new contracts with key customers. Major clients such as Microsoft and Google are expected to receive stable memory supply under this system for a three-year period. Meanwhile, SK Hynix is negotiating a general DRAM long-term supply agreement with Google that could last up to five years, with talks likely to conclude within the first half of the year.
At a recent regular shareholders' meeting, a representative from Samsung's DS division explicitly stated that the company is actively transitioning its supply contracts from the current annual and quarterly models to multi-year agreements spanning three to five years.
For investors, this change means that both companies' performance will have stronger downside support. Even if market demand drops sharply, locked-in prices and shipment volumes can provide a revenue buffer, potentially systematically alleviating the long-standing "cycle curse" that has plagued the memory market.
Samsung is advancing a comprehensive transition to LTAs, while SK Hynix is negotiating a five-year contract with Google. Industry sources indicate that Samsung has established a policy whereby all new contracts with major customers this year will fully adopt an LTA mechanism of at least three years. This contrasts sharply with last year's practice, when the company still accepted ultra-short-term quarterly contracts.
The statement from Samsung's leadership at the shareholders' meeting provides high-level endorsement for this policy shift. It was clearly stated that the company is pushing to upgrade supply contracts from annual or quarterly terms to multi-year agreements of three to five years. Under this framework, core customers like Microsoft and Google are expected to receive stable memory product supplies on a three-year cycle.
SK Hynix's approach is even more aggressive. The company is reportedly advancing a general DRAM long-term supply contract with Google that could extend up to five years. While market expectations initially pointed to a three-year term, SK Hynix internally considered three years too short and thus extended the target duration to five years.
The leverage in these negotiations stems from SK Hynix's position as the primary supplier of fifth-generation high-bandwidth memory (HBM3E) to Google. The two parties are discussing a plan where commitment to supply next-generation HBM would be exchanged for extending the contract term by two additional years. Negotiations originally scheduled for completion within the year have been moved up to conclude in the first half.
Moving beyond the "cycle curse," LTAs are reshaping the profit structure of the memory industry. In the past, the memory market operated on a "generic" basis—mass-producing standard DRAM for PCs and smartphones, delivered at quarterly fixed prices or daily fluctuating spot prices. This model meant that slight demand fluctuations could trigger sharp price drops, leading companies to record losses in the trillions of won and leaving suppliers in a vulnerable, passive position.
The core value of the LTA system lies in locking in risk exposure. By securing shipment volumes and prices three to five years in advance, companies can maintain performance based on established contracts even during economic downturns that cause demand to shrink sharply, thereby achieving "downside rigidity" in profits.
At the capital expenditure level, LTAs also bring efficiency improvements. With shipment volumes predetermined, companies can avoid盲目 expansion races and instead implement precisely calculated equipment investments. The industry widely believes that as the proportion of long-term contracts increases, memory companies' profit margins will stabilize at higher levels.
For products like HBM, which involve complex processes and strong customer customization requirements, the "order first, produce later" model is particularly crucial. This not only eliminates inventory pressure from the source but also enhances mass production efficiency, building a customized supply system similar to semiconductor foundries.
An industry insider commented, "The era when memory companies worried about price drops and warehouse inventory pile-ups is over." "Samsung Electronics and SK Hynix have now transcended their roles as mere memory suppliers and have ascended to become strategic infrastructure partners for major global technology companies."
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