Memory makers lock in $93.9 billion as long-term deals reshape pricing

Memory suppliers are locking in five-year deals covering 60 percent to 70 percent of capacity, with floor prices that secure margins above past cycle peaks.

"These are not a lot of deals. They are really meaningful deals with eight very strategic customers," SanDisk Chief Financial Officer Luis Visoso said on the company's Aug. 5 earnings call.

SanDisk disclosed that its eight New Business Model agreements carry a weighted average duration of more than four years and a minimum of $93.9 billion in committed revenue at floor pricing — roughly $20 billion a year against a current annualized run rate near $42 billion. The company expects the contracts to cover more than half of its fiscal 2027 bits and about two-thirds of fiscal 2028 output. Rivals have moved in the same direction: Samsung has signed the top five data center customers and targets 60 percent to 70 percent capacity coverage, SK Hynix has closed about 10 deals covering half its output, and Micron has signed 16 strategic agreements.

The shift redefines the memory cycle's downside. Micron says even at contract floor prices its gross margin would exceed the roughly 60 percent peak of past cycles, while SanDisk's $93.9 billion floor locks in revenue at a time its gross margin sits at a record 84.6 percent. SanDisk shares still fell about 5 percent after hours Aug. 5 as its fiscal first-quarter guidance of $10.3 billion to $10.8 billion in revenue and $44 to $46 in EPS failed to top expectations, a sign the market is weighing how much upside remains once supply catches up in late 2027.

Contracts run longer, cover more, and carry real money

The terms have shifted along four dimensions, according to a Goldman Sachs comparison of the four suppliers' agreements. Standard contracts have moved from one-year renewals to five-year terms with rolling extensions; Samsung's deals include a clause that caps quarterly price declines at 5 percent while leaving upside open at 10 percent to 20 percent or more. SK Hynix went further, removing price ceilings from its latest agreements so contract prices track spot markets on the way up. Micron's largest contract sets both a floor and a ceiling around second-quarter 2026 market prices.

The binding force is prepayment. Micron expects about $22 billion in cash deposits and financial commitments, SanDisk holds $16.5 billion in guarantees, and Samsung has received about a quarter of its total contract prepayments. Goldman called the prepayment mechanism the biggest difference between this cycle and prior ones.

Supply catches up in late 2027

The contracts lock in price, not capacity. NAND output stands at about 2.01 million wafers a month and can rise to roughly 2.15 million by year-end through equipment upgrades, but the next tranche of new fabs and cleanrooms — about 17 percent to 19 percent of total capacity — will not come online until mid-2027 or later. Inventory data supports the tightness: Samsung and SK Hynix hold two to four weeks of DRAM and NAND stock, below the normal four to five weeks and far under the 10-plus weeks that preceded past downturns.

SanDisk expects bits to remain on allocation beyond calendar 2027, with demand growing faster than supply. The company forecasts the NAND market will exceed $300 billion in 2026 and approach $500 billion in 2027, with data center's share of total demand expanding from about 30 percent in 2025 to roughly 50 percent in 2026.

For investors, the question is whether the floor holds when new capacity arrives. SanDisk trades at roughly 44 times earnings after a 500 percent year-to-date run, and its $14 billion buyback authorization shows management confidence in durable free cash flow. But the five-year lock-ins also strip buyers of flexibility — a cloud provider that prepaid billions for 2028 supply cannot easily walk away if prices fall, which is precisely the leverage suppliers are betting on. Micron, SanDisk, Samsung and SK Hynix all stand to benefit if the floor holds; the risk is that the same contracts that lifted the bottom now cap the top for those that locked in ceilings.

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