Test Article [top story] #1

[NEWS ANALYSIS] A shift toward longer-term semiconductor supply agreements is unprecedented. Until now, no contracts have extended beyond a year, but prospective memory deals with Microsoft and Google may usher in a transition that commits Samsung Electronics and SK hynix to long-term supply contracts of up to five years, bringing much-needed stability to the highly cyclical chip industry. Both companies confirmed the shift toward longer-term contracts at their respective annual general meetings last month. “In light of supply-demand uncertainties driven by expanding AI investments, we are pursuing multiyear contracts spanning three to five years with our customers, moving away from traditional short-term agreements,” Samsung Electronics Vice Chairman and co-CEO Jun Young-hyun said. SK hynix CEO Kwak Noh-jung similarly commented that requests for long-term agreements (LTAs) from their clients are increasing.

Multiple media outlets indicate that Google and Microsoft are each seeking such deals with Korean chipmakers. The range of memory products under discussion spans from high bandwidth memory (HBM) used in AI applications to conventional dynamic random-access memory (DRAM) chips that are particularly price volatile, according to an exclusive report by the Korea Economic Daily. The deals are said to include an upfront payment of around 10 to 30 percent of the total contract value, which chipmakers can use to fund capital expenditure. The trend extends beyond Korea. Micron Technology confirmed in a March earnings call that it signed its first five-year agreement to supply chips for a major customer. The shift marks a radical departure from the industry’s traditional practice of quarterly, or at most, annual supply contracts. “Even during the previous chip upcycle led by cloud service providers, the longest contracts typically lasted only up to a year,” said an industry source who requested anonymity. “Moving toward long-term supply agreements benefits both sides: Customers can secure a stable supply during shortages, while suppliers are less exposed to sharp cyclical swings.” However, market views remain divided. Supporters highlight improved stability, while skeptics warn that suppliers could be locked into lower-than-expected prices during upcycles. Supply constraints are already evident.