Micron secures $22b in long-term chip deals

SAN FRANCISCO:

Memory chipmakers have for decades been trapped in boom-bust cycles, with capacity buildouts hitting the market just as demand craters. Micron, Samsung and SK Hynix are now trying to convince investors this time is different, arguing long-term deals will keep cash flowing even if the datacenter boom bursts.

Micron said on Wednesday customers such as Nvidia had committed $22 billion to lock in supplies of memory chips, playing up huge growth in five-year "take-or-pay" deals that require clients to either buy its chips or hand over cash.

The US company's deals follow the footsteps of SK Hynix and Samsung, which have also been signing long-term supply agreements with their customers.

However, it is still a risky bet and memory stocks remain prone to wild market swings, analysts said. Days before Micron's results, a tech stocks rout led by memory makers wiped out over $1 trillion in value on worries over lofty valuations.

Memory has become so critical to AI chips such as those made by Nvidia that customers no longer treat Boise, Idaho-based Micron as a commodity supplier to be played off against rivals for lower prices, but as a strategic partner whose factory expansions they must underwrite to lock in supply.

"Customers have put billions of dollars on Micron's balance sheet as a show of confidence and their commitment toward this new business model," its chief business officer, Sumit Sadana, told Reuters.

Despite agreements that are as good as cash contracts, Micron said it will take time to build new factories, keeping supplies tight until at least 2027.

Any crack, whether a wobble in orders or doubts about the AI buildout, could send them back to the negotiating table.