The landscape of the memory semiconductor industry is rapidly shifting as Long-Term Agreements (LTAs) gain momentum. With Samsung Electronics (005930.KS) and SK Hynix (000660.KS) moving aggressively to expand these contracts, all eyes are on whether the traditional cycle of boom followed by bust will be fundamentally altered. At the same time, aggressive AI investments by U.S. Big Tech firms are reinforcing forecasts that memory demand, led by High Bandwidth Memory (HBM), will remain solid for the foreseeable future.<\/p>\n
Samsung Electronics first officially confirmed signing long-term contracts with some customers in April, and SK Hynix has also announced a policy to expand LTAs. According to securities analysts, both companies are operating task forces (TFs) to review contract terms. The prevailing analysis is that this wave of LTA expansion is qualitatively different from the past. While contracts signed during the 2017 memory super-cycle were closer to non-binding \u201cgentlemen\u2019s agreements,\u201d the current structure specifies minimum purchase volumes and sets prepayments and deposits, making it difficult to break the contract.<\/p>\n
SK Securities described this as a \u201cmutual hostage structure,\u201d noting that both sides bear strong responsibility for the agreement. Micron is the company that has disclosed this contract structure in the most detail. Micron stated it has signed 16 contracts under terms where the customer must pay even if they do not take delivery of the volume. The guaranteed minimum revenue from just 14 of these contracts amounts to approximately $100 billion (~147.5 trillion won). The total deposits tied to all contracts are around $22 billion (~32.5 trillion won). Manish Bhatia, Micron\u2019s Executive Vice President, explained, \u201cThe cost of breaking a contract has become much higher because customers have to pay even if they don\u2019t take the product.\u201d<\/p>\n
Another concern in the market is that LTAs could actually suppress the upward trend in memory prices. If a contract includes a price ceiling, it could dampen the elasticity of spot price increases. However, according to industry sources, the 3- to 5-year long-term contracts currently being signed do not completely fix prices. Each contract has different upper and lower limits and adjustment cycles, and it is understood that they partially reflect market price fluctuations on a monthly, quarterly, or annual basis.<\/p>\n
Furthermore, analysis suggests that the effect of long-term contracts locking down overall chip prices is limited. While the LTA proportion for Samsung Electronics and SK Hynix is estimated at 40-50% by volume, if Big Tech companies preempt large volumes, smartphone and PC makers will instead have to compete for the remaining supply. \u201cThe essence of an LTA is volume, not price,\u201d emphasized Kim Sun-woo, an analyst at Meritz Securities.<\/p>\n
This structural change in the supply chain is coinciding with all-out AI investment expansion by Big Tech, sending positive signals to the market. Google parent Alphabet, alongside its second-quarter earnings release, raised its capital expenditure (CAPEX) forecast for this year to $195 billion\u2013$205 billion (~302.4 trillion won), up from the previous $180 billion\u2013$190 billion. \u201cAlphabet\u2019s strong earnings and investment expansion are results that alleviate peak-out fears surrounding South Korean semiconductor stocks,\u201d analyzed Han Ji-young, an analyst at Kiwoom Securities.<\/p>\n
OpenAI has also reportedly significantly raised its AI infrastructure investment plan through 2030 to $750 billion (~1,106.5 trillion won) from the previous $600 billion (~885.2 trillion won). Tesla also announced it would invest more than $25 billion (~36.9 trillion won) in AI infrastructure and other areas this year. The fact that Alphabet pushed ahead with aggressive investments despite its second-quarter free cash flow turning negative to -$5.8 billion (~8.6 trillion won) is interpreted as proof that the pace of AI data center expansion is failing to keep up with demand.<\/p>\n
South Korea\u2019s stock market immediately reflected these expectations on the day. SK Hynix closed up 4.86% at 1.92 million won (approximately $1,300.77), reclaiming the 1.9 million won level, while Samsung Electronics finished up 3.65% at 270,000 won (approximately $183.02). Across the entire semiconductor sector, 144 out of 171 stocks listed on the KOSPI and KOSDAQ rose, recording an average gain of 3.87%.<\/p>\n
Long-term contracts cannot completely eliminate the traditional memory cycle. If AI investment cools faster than expected or supply explodes, prices could face downward pressure again. However, the impact of a downturn is highly likely to be much more muted than in the past. Micron expressed confidence that even if contract prices fall to the floor, it can secure profitability exceeding the peak quarterly figures of previous boom cycles. \u201cWhat LTAs change is not the maximum profit during a boom, but the floor and sustainability of profits during a downturn,\u201d diagnosed Han Dong-hee, an analyst at SK Securities.<\/p>\n
However, the market is not out of the woods yet. Earnings releases from the remaining Big Tech firms\u2014Meta, Microsoft, and Amazon\u2014are imminent. If these companies, unlike Alphabet or OpenAI, decide to moderate the pace of AI investment or take a conservative approach to capital spending, peak-out fears for the memory industry could resurface. Samsung Electronics and SK Hynix are scheduled to present their mid-to-long-term memory demand outlooks during their second-quarter earnings conference calls on the 30th and 29th, respectively.<\/p>\n","protected":false},"excerpt":{"rendered":"The landscape of the memory semiconductor industry is rapidly shifting as Long-Term Agreements (LTAs) gain momentum. With Samsung…\n","protected":false},"author":2,"featured_media":96721,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[4787,8708,8709,50287,27706,50286,1485,6226,276,241,275],"class_list":["post-96720","post","type-post","status-publish","format-standard","has-post-thumbnail","category-sk-hynix","tag-alphabet","tag-artificial-intelligence-ai","tag-big-tech","tag-capital-expenditure-capex","tag-high-bandwidth-memory-hbm","tag-long-term-agreement-lta","tag-micron","tag-openai","tag-samsung-electronics","tag-sk","tag-sk-hynix"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/96720","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=96720"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/96720\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/96721"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=96720"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=96720"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=96720"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}