Memory long-term deals spread beyond big three, prepayments hit $38 billion

Memory chip long-term supply agreements have expanded beyond the industry's three dominant makers, with SanDisk and China's CXMT joining a wave of multi-year contracts backed by $38 billion in customer prepayments.

"We want to break out of the cycle of booms and busts that hasn't benefited anyone," SanDisk CEO David Goeckeler said, describing the goal as building deeper customer relationships and planning for the long term.

Micron has secured $22 billion in prepayments from 16 strategic partners, with $18 billion already collected. Samsung has signed five-year agreements and collected 25% in guarantee payments. SanDisk holds $16.5 billion in prepayments across eight core customers in the data center and edge sectors, while SK Hynix has obtained funding from 10 clients, mostly on five-year terms.

The shift marks a structural change in memory trading, moving from short-term price negotiations to mid-to-long-term volume security. KB Securities' Kim Dong-won forecasts Big Tech clients' memory demand fulfillment at only 60-70% in the third quarter, with supply tightness persisting through 2028.

The expansion follows a prolonged supply shortage driven by AI demand for high-bandwidth memory. Commodity DRAM and NAND flash prices could surge more than 40% in the second half of the year, according to industry forecasts. Samsung co-CEO Kim Yong-hyun said the company is shifting from traditional short-term agreements to three-to-five-year contracts because of "supply-demand uncertainty from AI investment expansion."

Goldman Sachs calls the prepayment mechanism "the most significant distinguishing feature of this LTA cycle." For a cloud service provider to secure HBM and DRAM supply through 2028, it must deposit billions of dollars with manufacturers in advance — money that locks in supply but also binds the buyer, making contract breach costly.

The wave has reached second-tier manufacturers. Taiwan's Nanya Technology disclosed that LTAs now account for 50% of its total production capacity, with contract durations extended from one year to a minimum of two years. The company plans to invest a record NT$346.6 billion (approximately $10.6 billion) in its fabs through 2029, with this year's capital expenditure raised 34% to NT$69.7 billion.

China's CXMT, which captured 7% of the global DRAM market in the second quarter with growth of more than 700% year-over-year, has become a pricing force of its own. Apple attempted to negotiate lower DRAM prices with CXMT but was rejected, according to Korean media reports. Chinese companies Huawei and Xiaomi have locked CXMT capacity through long-term contracts, giving the manufacturer no incentive to accommodate Apple's demands.

Prepayments Lock In $38 Billion in Supplier Leverage

The prepayment structure represents the sharpest break from historical memory industry practice. In past cycles, buyers held the upper hand — negotiating annual contracts, cutting volumes, or defaulting without material cost. Now, suppliers demand cash upfront. Micron expects to receive approximately $22 billion in cash deposits and related financial commitments. SanDisk has disclosed more than $11 billion in financial guarantees and $16.5 billion in customer default protection.

The shift has consequences for downstream device makers. Memory now accounts for 30-40% of the bill of materials in mid-range and premium smartphones, up from a historical average of 10-15%. In the PC sector, memory represents up to 35% of total component costs, pushing retail laptop prices up 15-20% globally.

2029 Turning Point Looms as Capacity Expansions Mature

Analysts caution the supplier dominance has a shelf life. The collateral and price floor mechanisms protecting memory makers will be exhausted by 2029, according to DigiTimes analysis. Billions invested in new fabrication capacity will eventually reach full production, forcing the market back to normal supply-demand conditions. CXMT plans to concentrate the $9.9 billion raised through its Shanghai IPO on expanding production lines and technology development, challenging the three-way dominance that has persisted for over 30 years.

For investors, the near-term picture remains bullish. Samsung Electronics and SK Hynix combined operating profit is projected to approach 200 trillion won ($142.1 billion) in the third quarter, a record. Micron guided third-quarter fiscal 2026 revenue of $33.5 billion with gross margins near 81%. But the 2029 turning point — when new capacity comes online and prepayment protections lapse — is the date to watch.

This article is for informational purposes only and does not constitute investment advice.