The pricing power within the storage industry is undergoing a systematic restructuring.
On August 5, SanDisk reported its full-year FY2026 earnings, with impressive results but a 8% decline in after-hours trading. The market's disappointment stemmed from a clear reason: guidance did not exceed expectations. However, the earnings call contained another figure far more significant than the quarterly results. SanDisk disclosed that its eight signed long-term supply agreements guarantee a minimum total revenue of $93.9 billion based on floor prices. The weighted average term of these contracts is over four years, translating to approximately $20 billion annually—while SanDisk's current annualized revenue is around $42 billion. This means that, in the worst-case scenario, SanDisk has locked in nearly half of its revenue at a price significantly below current market rates for over four years. This is not an isolated incident for SanDisk alone.
On August 4, Goldman Sachs' Giuni Lee team released a research report, creating a horizontal comparison table of the long-term agreement (LTA) terms for four major manufacturers: Samsung Electronics, SK hynix, Micron Technology, and SanDisk. The report's core judgment is that LTA terms are shifting in favor of suppliers across four dimensions: longer durations, broader coverage, more favorable pricing structures, and stronger enforceability. Each point points in the same direction: the pricing power in the storage industry is transferring from buyers to sellers.
This change means the definition of the "cycle bottom" in the storage industry has been rewritten. The floor of this cycle has been raised above the ceiling of the past.
Duration: From "Annual Negotiations" to "Five Years Minimum, Possibly Longer"
The standard contract cycle in the storage industry used to be one year. Annual negotiations adjusted prices and quantities based on supply and demand. Buyers held the initiative—signing long-term contracts to lock in prices during good markets and squeezing prices and reducing volumes during downturns. From Goldman Sachs' horizontal comparison table, it can be seen that most suppliers indicate contracts are primarily five-year terms, with some customers on three-year terms. This means even the "shortest" contracts are three times longer than the previous standard cycle. Samsung explicitly stated in its recent earnings call that its LTAs are based on a five-year term with a yearly rolling renewal mechanism. Each year, the contract is renewed annually, meaning it never expires. Samsung's co-CEO, Jeon Yong-hyun, previously stated more directly: "Given the supply and demand uncertainty from the expansion of AI investments, we are transitioning from traditional short-term agreements to three- to five-year multi-year contracts." SK hynix CEO Kwak Noh-jung echoed this sentiment, stating that customer demand for LTAs is increasing. SK hynix has covered its top 10 LTA customers and core clients, with most terms being five years. Micron has signed 16 strategic customer agreements, with most customer contracts lasting five years and automotive clients having three-year terms. SanDisk's eight LTA clients have a weighted average term of over four years, with a maximum of five years. All four manufacturers are simultaneously extending contract cycles, systematically compressing buyer flexibility—once a contract is signed, procurement strategies cannot be adjusted based on market changes for five years.
Coverage: From 20% to Over 60%
Signing long contracts is one thing, but covering how much capacity is another. If only 10% of volume is locked in, even long durations are harmless. But the numbers tell a different story. From 2023 to 2025, the industry's typical LTA share was between 20% and 30%. By 2026, this figure has surged. Samsung has signed contracts with the world's top five data center customers and is in final negotiations with five other major clients. Management expects that after signing, multi-year orders will account for 60% to 70% of planned capacity. The locking rate for advanced HBM capacity is even more extreme—over 90% has been covered. SK hynix has completed negotiations for about ten long-term agreements, with the LTA share at approximately 50% to 60%. Micron has signed 16 strategic customer agreements, covering about 20% of DRAM shipments and one-third of NAND shipments, but management has clearly stated that the ultimate goal is for LTA revenue to exceed 50%. SanDisk's data is more intuitive. Signed agreements cover over 50% of shipments in FY2027, and this figure will rise to about two-thirds in FY2028. Three months ago, the coverage for FY2028 was only one-third. When 60% to 70% of a company's capacity is locked in multi-year contracts, its pricing logic changes. The remaining 30% to 40% of capacity on the spot market can realize excess returns, but the base is anchored by contracts. Buyers lose the leverage they once had—"cut prices or I'll go elsewhere"—because others are also locked into similar contracts. Buyers are not ignorant of this calculation. Signing a long-term contract means accepting unfavorable terms, but the alternative is worse: without a long-term contract, they cannot secure enough storage chips in the AI computing arms race. When supply is structurally tight, being "overcharged" is far less costly than having "no inventory." This is the confidence that allows suppliers to push terms to the limit.
Pricing: From Fixed Prices to "Protected Price Ranges"
This is the most critical change among the four dimensions. In the past, LTAs were primarily based on fixed prices. A price was set for one or two years, with both buyers and sellers sharing half the risk—if prices rose, the buyer gained; if they fell, the seller lost. The structure of new contracts is completely different. Samsung's terms are the most aggressive. A research report from Bank of America Merrill Lynch on August 1 revealed that Samsung's contract terms feature clear asymmetric pricing—price declines per quarter are capped at 5%, but upside gains are unlimited, reaching 10% to 20% or even higher. Samsung's storage business head, Jaejune Kim, stated in the earnings call that the company uses different pricing models based on customer groups and product categories, and sets a floor price for general products. Translated: when the market falls, Samsung's price decline is locked at under 5% per quarter. When the market rises, price increases are unlimited. The buyer bears almost all downside risk, while the seller retains nearly all upside elasticity. Micron's contract structure is different but points in the same direction. Its largest contract sets a price ceiling and floor, based on the market price in the second quarter of 2026. The key is the floor—management repeatedly emphasized in the earnings call that even at the floor price, gross margins remain significantly higher than the peak of any historical cycle. Micron's historical cycle peak gross margin was just over 60%. SK hynix has taken a more aggressive path. According to TrendForce, citing Korean media reports, SK hynix has directly removed the industry-standard price ceiling from its latest contracts. Even if customers sign long-term contracts, if the market pushes up spot prices due to supply shortages, the contract supply price will fully adjust in line with the market. Goldman Sachs noted in its report that compared to some peers who have locked in price ceilings, SK hynix has greater exposure to price elasticity in general DRAM, meaning its upside potential is more significant if prices exceed expectations. SanDisk's pricing mechanism sits between fixed and floating prices, using a customized hybrid model. CFO Luis Visoso revealed in the earnings call that the agreements combine "fixed pricing and floating pricing mechanisms," tailored to each customer's actual demand. Four players, four structures, but all point to the same thing: price protection is one-sided, favoring the seller.
Enforceability: From Verbal Commitments to Real Money
In the past, LTAs had limited enforceability. Once signed, a buyer could reduce volume, delay, or even default without significant cost. The biggest difference in this cycle is the introduction of advance payment mechanisms. Micron expects to receive approximately $22 billion in cash deposits and related financial commitments. SanDisk disclosed financial guarantees exceeding $11 billion and customer default protection of $16.5 billion. Samsung stated that its contracts include large advance payments, with about a quarter of the total contract prepayments already received. These are not deposits. This is the cost for buyers to lock in their positions in advance. For a cloud provider to secure enough HBM and DRAM by 2028, they must first place billions of dollars on the manufacturer's books. This money not only locks in supply but also locks in the buyer—the cost of default has become prohibitively high. Goldman Sachs called the advance payment mechanism "the biggest highlight distinguishing this cycle of LTAs from past cycles."
The Meaning of the Floor Price: The Lower Limit Exceeds Historical Peaks
Putting the changes across all four dimensions together yields a conclusion: the storage industry is redefining the "cycle bottom" through contracts. Micron management revealed that even if prices fall to the contract floor, gross margins are still significantly higher than the peak of any historical cycle. Micron's historical cycle peak gross margin was just over 60%. SanDisk's $93.9 billion floor price tells a similar story—although the profit margin corresponding to the floor price has not been explicitly disclosed, the annualized minimum revenue of about $20 billion is locked in by contracts, and SanDisk's current gross margins are at historical highs. Looking at Micron and SanDisk together, a directional judgment emerges: the floor of this cycle has likely been raised above the ceiling of the past. The costs differ. Micron's contract sets clear price ceilings and floors—the floor is protected, but the ceiling is also locked, capping excess return potential. Samsung's terms are asymmetric, with a floor on declines and no ceiling on increases. SK hynix took a different path: removing the price ceiling, retaining the greatest upside elasticity for general DRAM—Goldman Sachs specifically noted in its report that compared to some peers who have locked in ceilings, SK hynix's upside potential is more significant. The cost is a lower LTA coverage rate of 50% to 60%, about 10 percentage points less revenue certainty than Samsung. The inventory data in the Goldman Sachs report provides another perspective. As of the end of the second quarter of 2026, Samsung and SK hynix's DRAM and NAND inventories were between 2 and 4 weeks, below the normal level of about 4 to 5 weeks, and far below the over 10 weeks seen before previous down cycles. With no inventory buildup, manufacturers have no incentive to cut prices. The contract terms favoring suppliers are backed by real supply-demand tightness. However, contracts lock in prices, not capacity. Total NAND capacity is currently about 2.01 million wafers per month. Through existing plant equipment and technological upgrades, this could be raised to about 2.15 million by the end of this year. Real incremental capacity will come from new plants and cleanrooms—a cycle of one and a half to two years. The industry's timeline points to release after mid-next year, with a magnitude of about 17% to 19% of total capacity. The time of capacity release is the true test of LTA terms. When supply catches up, will those buyers who signed five-year contracts and prepaid billions of dollars find themselves locked into an outdated price? The answer depends on the details of the contract terms—and those details are entirely under the supplier's control.
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