Tom Grey

One-year contracts are a thing of the past… Samsung and SK hynix won't sell without 3–5 year long-term supply agreements Samsung Electronics and SK hynix have effectively abandoned the practice of signing one-year short-term memory supply contracts with global big tech companies, opting instead to supply products exclusively through 3–5 year long-term agreements (LTAs). The strategy aims to build a stable, high-margin business model through strategic collaboration with customers from the earliest stages of AI memory development. According to industry sources on the 8th, Samsung Electronics has established a policy of applying a minimum three-year LTA to all new contracts starting this year. Until last year, the company had been accommodating even quarterly ultra-short-term contracts, but has now decided to fully transition its supply policy to an LTA framework. At the annual general meeting on March 18, Samsung Electronics DS Division CEO (Vice Chairman) Jeon Young-hyun stated: "We are pursuing a shift in supply contracts with our customers from the current annual and quarterly basis to multi-year agreements spanning 3–5 years." Accordingly, Samsung is expected to secure stable three-year memory supply commitments with major customers including AMD — with which negotiations are in the final stages — as well as Microsoft and Google. Furthermore, SK hynix has reportedly been pursuing a five-year commodity DRAM long-term supply agreement with Google. While a three-year term was initially considered the leading option, an internal assessment that "even three years is too short" led to a decision to extend the contract period to five years to maximize supply stability. Given that SK hynix is currently the primary supplier of 5th-generation High Bandwidth Memory (HBM3E) to Google, the company is said to be negotiating an additional two-year extension by leveraging next-generation HBM supply as a condition. Negotiations that were originally slated for completion by year-end are now expected to be finalized within the first half. Historically, the memory market was built on commoditization. Commodity DRAM for PCs and smartphones was mass-produced and sold based on quarterly fixed transaction prices or daily-fluctuating spot prices. As a result, even slight demand fluctuations triggered price collapses, leading to trillion-won-scale losses — the inescapable "curse of the cycle." Suppliers were unilaterally exposed to market conditions in a classic subordinate position. By contrast, a shift to an LTA framework minimizes the risk of order cliffs. By locking in volumes for three to five-plus years, companies can defend earnings with pre-committed prices and volumes even amid demand shocks from economic downturns — effectively securing downside rigidity where profits no longer plunge during downturns. Samsung Electronics is reportedly reviewing supply pricing policies to hedge against DRAM price volatility alongside minimum annual supply volume provisions as part of the LTA transition. The shift is also effective from a capital expenditure efficiency standpoint. With volumes already committed, disciplined and calculated CAPEX becomes possible, replacing reckless capacity expansion races. The semiconductor industry expects that as the share of long-term contracts rises, memory companies' margins will stabilize at levels structurally higher than in the past. In particular, for products like HBM — where process complexity is high and customer requirements vary — a made-to-order supply system based on "secure orders first, produce after," akin to the foundry model, is essential to eliminate inventory risk at the source and maximize production efficiency. An industry official commented: "The era of memory companies anxiously stockpiling inventory while worrying about price declines is over. Samsung Electronics and SK hynix have now been elevated beyond mere memory suppliers to strategic infrastructure partners for global big tech."