Micron Signs Up 16 “Strategic Customer Agreements” For Memory In A 5-Year Plan That Cannot Be Cancelled After Earning As Much Revenue As Much of The Company’s Entire History

Micron says that it has locked in 16 memory customers in an unbreakable agreement, hinting that high prices will continue for several years.

Memory Prices Will Remain Sky High As Micron Signs A Strategic Agreement With 16 High-Profile DRAM Customers

Memory prices for all sorts of DRAM components, including LPDDR, DDR, and HBM, are sky-high. This is due to the huge demand for memory generated by the booming AI segment. DRAM makers have been unable to keep up with demand for AI, and things are even worse in consumer-oriented segments where OEM/ODMs are continuously raising prices across their product lineups.

Earlier this year, we interviewed Micron, and they told us that this was going to be the case for several years. We were told that memory shortages won't improve before 2028 despite massive investments in bringing up additional capacities and the setting up of new factories to produce more memory.

Now, Micron has disclosed a new business model that it is partaking in with its customer, called SCA or Strategic Customer Agreement. These SCAs are a 5-year plan starting, and even then, the agreements contain volumes lower than what the customers are actually demanding. So far, the company has signed up 16 SCAs, and we can only guess who these strategic customers are since none of them have been named. But they do include hyperscalers, which demand HBM memory.

SCA's - The Force Behind The Rising Memory Prices

Interestingly, Micron's EVP, Sumit Sadana, said that these SCAs lock-in customers in the 5-year plan, and "cannot be cancelled". The customer cannot walk away from the agreements, & a fail-safe has been placed to ensure that. Sumit calls SCAs a "take-or-pay" agreement. Each year, an annual volume will be committed to the customer over the next five years.

There is also a price band set for these agreements, including a price ceiling and a price floor. The price is said to be negotiated every quarter based on the market conditions and cannot exceed the ceiling; at the same time, the price cannot go below the floor. Higher prices are part of this agreement for "premium" products such as LPDDR6, DDR6, and newer versions of HBM.

The customer will also have to pay an upfront amount as a cash deposit. So far, a total of $22+ billion in cash and financial commitments has been deposited, $18 billion of which is cash alone. These amounts will eventually be returned to customers, not once but every quarter, but it also acts as the fail-safe if a customer is "unable to purchase or does not purchase the volume" at the given price, the amount would be decremented. Micron says that this isn't the only remedy & nor does this push the customer out of purchasing the volumes over the term of the agreement.

Micron Confirms NAND Constrained Too, But Not As Much as DRAM

Moving beyond SCAs, Micron also confirms that both DRAM and NAND products are "Very Constrained". The same SCAs that we talked about above are also keen on procuring NAND volume, but DRAM is far more constrained overall.

In fact, DRAM is so constrained that Micron says that it is "very, very high". This emphasises the demand for HBM and Non-HBM DRAM exploding through the roof with no return in sight, at least until most of these SCAs are not given the volumes they desire, and 5 years means that we are not only looking at 2028, but we should think beyond 2030.

Why we say things won't get better beyond 2028 is because that's when Micron anticipates the construction of new facilities to bring up volume. But Micron EVP of Global Operations, Manish Bhatia, says that even with the kind of volume that should come up by 2028, they don't see the supply-demand gap diminishing in a major way.

The construction dollars are not going to be producing bits in that time horizon, which is why we also talked about for us in the industry, the kind of greenfield capacity really starts to contribute to bits in calendar '28. And that supply -- and even with that supply improvement, like we don't see, as Sumit was saying earlier, an intercept for supply with demand.

Manish Bhatia - Micron EVP of Global Operations

It's kind of frustrating that we all have to live with memory shortages for a longer period than anticipated. Companies are doing what they do to run a business, and Micron earned big time, beating the revenue of their entire history in a single calendar year. But despite efforts to bring more volume, the tech industry remains in dire straits. There is some interesting innovation on going with the likes of Qualcomm's HBC, SanDisk's HBF, and Intel's ZAM, but those are yet to see real-world applications, though they do look promising to tackle the massive memory wall that looks unbreakable at the moment.

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