Samsung and SK hynix are abandoning short-term contracts and switching to 3- to 5-year long-term agreements. Is the urgent lock-in pricing meant to fear they won’t be able to meet demand later?

According to a report by a South Korean media outlet, Samsung Electronics and SK hynix have fully shifted to three- to five-year long-term supply agreements, attempting to end the “memory industry business-cycle curse.” However, research institute analysts warn: if manufacturers are rushing to lock in prices, it may suggest that expectations for future near- and mid-term price performance are not optimistic.

One-year contracts have entered history, and LTA has become the new industry standard for memory

Samsung Electronics and SK hynix have abandoned the practice of signing one-year short-term memory supply contracts with tech giants and have instead fully adopted three- to five-year long-term supply agreements (Long-Term Agreement, LTA). This strategic shift aims to begin strategic collaboration with customers at the earliest stages of AI memory development, thereby building a stable and high-profit business model.

Industry insiders say that starting this year, Samsung Electronics has established a policy that all new contracts must apply the minimum three-year LTA term. Samsung Electronics’ DS division CEO, Jun Hyun-won, stated clearly at the March shareholders’ meeting:

“We are pushing our supply agreements with customers from the current annual and quarterly model to multi-year agreements covering three to five years.”

At present, Samsung expects to gradually sign stable three-year memory supply commitments with major customers such as AMD, Microsoft, and Google, and negotiations with AMD are already in the final stage.

SK hynix leverages its HBM advantage to negotiate a five-year deal with Google

SK hynix’s moves are even more aggressive. It is reported that the company is in talks with Google to extend general DRAM long-term agreements from three years to five years in order to maximize supply stability.

Because SK hynix is currently a major supplier of Google’s fifth-generation high-bandwidth memory (HBM3E), it is reported that it is using the supply of next-generation HBM as leverage to win an additional two-year extension. The negotiations originally expected to be completed by the end of the year are now expected to be finalized in the first half of this year.

(Memory stocks haven’t cooled down yet! Multiple South Korean securities firms raise Samsung’s target price: 2027 profits will surpass Nvidia)

Saying goodbye to the “business-cycle curse,” LTA reshapes the memory industry’s structure

Looking back at the history of the memory industry, commoditization has always been the core logic driving how the market operates. DRAM for PCs and smartphones has long been traded either at quarterly fixed prices or at spot prices that fluctuate anytime. Even a slight change in demand triggers price collapses, creating a “business-cycle curse” that is difficult to escape, leaving suppliers in a passive position for the long term.

(Can you still buy after a memory stock crash? Samsung Securities analyst: corrections within the cycle, not the peak of the business cycle)

With the introduction of LTA, this situation is fundamentally changed. By locking in order volumes and delivery prices for three to five years, even when demand is hit by a downturn in the business cycle, manufacturers can maintain profitability through the price-volume protection they have already committed to, rather than experiencing the sharp collapses tied to market ups and downs as they did in the past.

In addition, on the capital expenditure (CAPEX) front, holding long-term orders means the company can carry out disciplined CAPEX planning and end the vicious competition of indiscriminate capacity expansion from the past. For HBM, whose process complexity is high and whose customer demands vary widely, the foundry model of “get orders first, then produce” is also key to eliminating inventory risk and maximizing production efficiency. One industry insider said plainly:

“Samsung Electronics and SK hynix have now gone beyond the role of simply memory suppliers and have become strategic infrastructure partners for global tech giants.”

Analyst interpretation: With LTA locking in prices, aren’t manufacturers optimistic about the outlook?

However, not all observers are optimistic about this LTA wave. In an interpretation of it, Citrini Research analyst Jukan said: “To be honest, I’m a bit worried—because they are only willing to sign new long-term agreements.”

The essence of LTA is to lock in current prices. If manufacturers truly expect memory prices to keep rising, they should not be in a hurry to bind themselves to long-term contracts at this time. The only reasonable explanation is that they believe prices will fall next.

In other words, although Samsung and SK hynix are actively pushing for LTA and are thereby building a line of defense against downside risks, this move itself may also reflect an internal judgment by the two memory giants that the upside potential for the future is already quite limited. Of course, whether that is true still needs to be clarified over time.

This article, “Samsung and SK hynix give up short-term contracts and sign three- to five-year long-term deals—are they locking prices because they’re afraid of not having enough follow-up strength?” first appeared on Lian News ABMedia.