Samsung, SK Hynix Pivot to 3-5 Year Long-Term Contracts: Has the ‘Cycle Curse’ Ended? Who Is the Biggest Beneficiary?

TradingKey - South Korean media reported Thursday that domestic memory giants Samsung Electronics and SK Hynix are gradually moving away from the past short-term contract system based mainly on quarterly and annual terms, shifting instead toward 3- to 5-year long-term agreements (LTAs).

Starting this year, Samsung will apply a minimum 3-year LTA framework for new contracts with major customers. Major clients such as Microsoft (MSFT) , Google (GOOG) (GOOGL) , and others will secure stable three-year memory supplies. SK Hynix is also in talks with Google for a general-purpose DRAM long-term supply contract of up to 5 years, which is expected to be finalized within the first half of the year.

Samsung Electronics Co-CEO Jun Young-hyun stated at a shareholder meeting in March that this shift aims to mitigate risks from market volatility and demand fluctuations; TrendForce also noted that this is a move by Samsung to stabilize supply and pricing mechanisms—according to the firm's forecasts, DRAM chip prices rose 75%-80% in the first quarter and are expected to rise by as much as 50% in the second quarter.

Why Samsung and SK Hynix Urgently Need Long-Term Contracts?

Since 2026, prices across the semiconductor supply chain have risen across the board, with memory chip price hikes being particularly staggering. Benefiting from the extreme shortage in memory, the chip sector has staged a collective recovery: Samsung Electronics has climbed nearly 60% since 2026, SK Hynix has risen about 50%, and SanDisk (SNDK) has surged 183%, while Western Digital (WDC) is up 80%.

Given that the structural shortage in memory has built a solid floor for stock prices, why are memory giants Samsung and SK Hynix still pushing to reduce market demand volatility?

The reason is that while the memory industry is currently enjoying unprecedented prosperity, once demand drops, its highly commoditized standard DRAM and NAND will face oversupply and prices will drop rapidly, leading to sharp fluctuations in corporate earnings—this is the so-called cyclicality of the memory industry.

Currently, however, driven by demand for highly customized products such as AI servers, HBM, and high-capacity enterprise SSDs, suppliers are shifting their shipping models from 'produce-then-sell' to a 'built-to-order' model more akin to that of semiconductor foundries.

Professor Kim Jeong-ho of the Korea Advanced Institute of Science and Technology (KAIST) stated that as demand for memory from Big Tech shows no signs of slowing down, as long as AI continues to evolve, the memory industry will transform into a lower-volatility sector, similar to the foundry business.

If this model is fully implemented, the earnings stability of Samsung and SK Hynix will improve significantly. A continuous increase in the proportion of long-term contracts will make their future capital expenditures, capacity planning, and inventory management more controllable, leading to a smoother profit curve.

For their customers—the cloud giants—while longer contracts may imply higher prepayments and less bargaining power, securing critical memory supply ahead of time amid the AI infrastructure boom is of paramount importance to these companies.

Analysis suggests that under the long-term contract model, the cyclicality of the memory industry may come to an end in the future. The era of memory companies worrying about price drops and inventory pileups has ended; Samsung Electronics and SK Hynix have moved beyond their roles as memory suppliers to become the most indispensable partners for global tech giants. However, some analysts point out that truly ending the industry's cyclicality still requires a backdrop of sustained, fervent AI investment.

Memory Shift toward Long-Term Contracts: Who Is the Biggest Beneficiary?

Recently, negotiations between SK Hynix and Microsoft regarding a long-term supply contract for DDR5 have entered their final stages. Reportedly, both sides are discussing safeguards, such as setting a floor price to hedge against a potential sharp decline in DRAM unit prices during the contract term, as well as terms for a 10%-30% prepayment of the total contract value.

Micron (MU) Technology CEO Sanjay Mehrotra announced during a recent earnings call that the company signed its first five-year Strategic Customer Agreement (SCA), stating it will enhance the transparency and stability of its business model. This indicates that the shift toward long-term contracts among global memory suppliers has become a current trend.

Multiple parties are set to benefit from the evolution of this trend. The primary beneficiaries are naturally Micron, SK Hynix, and Samsung. These manufacturers are no longer focusing their strategic efforts on highly commoditized standard DRAM and NAND, but are instead pivoting to chips in high demand for AI data centers, such as HBM. They are expected to transcend traditional memory cycles and maintain strong performance despite market demand fluctuations. TSMC (TSM) As a key partner in chip manufacturing, it will also benefit as a result.

With stable supply, cloud service providers will also gain stronger guarantees for critical resources. For companies like Google and Microsoft, long-term contracts ensure priority procurement rights over the next three to five years, ensuring that data centers are completed as scheduled. More predictable costs will facilitate their long-term capital expenditure planning and prevent significant stock price volatility.

For downstream companies in the memory chip sector, the stable revenue that long-term contracts provide to the chip giants allows them to also "share the spoils." This includes firms in Taiwan's semiconductor foundry and advanced packaging supply chain, such as ASE Technology Holding, the world's largest OSAT provider, Powertech Technology, and King Yuan Electronics.