Micron deal hints memory costs may stay high for another 5 years

Micron, one of the three major memory suppliers in the world, has secured high memory prices for the next five years via 16 "strategic customer agreements" (SCAs). These agreements, Micron says, include a floor price that comes with "a very robust gross margin," hinting that the memory shortage may be here to stay.

In Short

• Micron signs new customer deals for next five years at high prices
• Company does not expect memory supply to fully meet demand for now
• Memory shortage has led to rise in prices of phones, laptops and more

The rapid adoption of AI models globally has made life easier in many aspects – AI can now do a lot of our work, such as coding or automation of routine tasks. But this surge in AI use comes at a cost – rising memory prices. AI companies are willing to pay high prices for memory for datacentres, which has led to a rise in prices of consumer electronics such as smartphones and laptops as companies struggle to acquire RAM and NAND for devices. But this memory shortage is doing wonders for memory suppliers. Now, Micron, one of the three major memory suppliers in the world, has locked in high memory prices till at least 2030.

In its latest earnings call, Micron announced that it has signed 16 strategic customer agreements (SCAs) that are intended to lock in memory pricing and supply for years. This comes at a time when demand from AI companies continues to outpace production. The company said most of the agreements run from 2026 to 2030 and include commitments on volumes as well as pricing bands with floor and ceiling levels.

Micron CEO Sanjay Mehrotra stated that these agreements come with a floor price that delivers "a very robust gross margin for Micron, well above our peak quarterly margins in any past cycle.” The ceiling price, on the other hand, protects customers if memory prices move even higher.

No relief in memory shortage till 2030?

Sanjay Mehrotra explained that Micron’s customers wanted to secure supply as it was unlikely that the memory crisis was going to improve soon. He said, “Our customers are recognizing that supply shortages in memory and storage will take considerable time to improve.”

The Micron CEO believes that there is no clear picture of when the supply can match demand. He explained, “Even as we expect industry supply to improve gradually in 2028, we currently do not have line of sight as to when memory supply will be able to catch up with increasing demand.”

That is, Micron and its customers likely do not expect the memory situation to improve even by 2030. And in turn, have decided to secure deals at pre-determined prices.

The memory shortage has led to the increase in prices of smartphones, and laptops. Earlier this week, Apple announced price hikes for iPads and MacBooks globally as it too faces mounting costs.

According to Micron, while companies are investing to increase production, this does not solve the problem in the short-term. Newer memory is more complex to make, and factories take longer to build. Available capacity too, is still not enough to meet demand for high-bandwidth memory as well as other NAND and DRAM products. This in turn could potentially keep prices high, at least for the foreseeable future.

Do note that Micron shut down its consumer memory business – Crucial – earlier this year, to focus on advanced memory chips used in AI data centres.

$22 billion in revenue from new agreements

The SCAs will bring $22 billion in revenue to Micron from different customers, including cloud hyperscalers as well as makers of servers, consumer devices and cars. However, the company did not name any client. The company also expects another $100 billion from remaining performance obligations tied to agreements.

Micron is a key supplier for Nvidia's AI processors and the only US-based maker of high-bandwidth memory chips used alongside them.

Micron, Samsung, and SK Hynix make up the world’s largest memory chipmakers. The three companies are each valued at over $1.3 trillion at the time of writing. SK Hynix recently surpassed Samsung as the most valuable South Korean.

- Ends