Micron is already cementing high memory prices until 2030

The US chip manufacturer Micron is currently benefiting enormously from the sharp rise in memory prices. Now the company has found a way to secure high profit margins for years to come with long-term delivery contracts.

Long-term contracts with high margins

Like CEO Sanjay Mehrotra when presenting the figures for the third quarter explained the company has already concluded 16 so-called “Strategic Customer Agreements” (SCAs) with important customers. Most of these agreements run from 2026 to 2030. The core of the contracts are fixed purchase quantities and a price framework with lower and upper limits. According to Micron, the agreed price floor is intended to guarantee exceptionally high margins, which are even higher than the previous peak values ​​of previous market cycles. At the same time, the price cap protects customers from further drastic price increases on the storage market, so that the agreements are not a one-sided affair.

According to Mehrotra’s assessment, customers are prepared to accept these conditions because they expect a tight supply situation in the coming years. Demand for memory chips for data centers, artificial intelligence and other applications continues to grow faster than supply. Even in 2028, it is not yet possible to predict when production capacities will be able to fully cover demand. The Micron boss pointed out that new storage technologies are increasingly complex and the construction of corresponding factories is taking more and more time. Even extensive investments in new production facilities would therefore not be enough to relax the market in the short term. In particular, the production of high-performance memories for AI applications competes with the production of other DRAM and NAND memories for limited capacities.

Balance sheets explode

According to Micron, the new contracts cover around 40 percent of future sales. This means that a large part of the production remains available for the free market, where prices can be negotiated individually. In addition, customers make advance payments to help the company finance new factories. Micron’s current business figures were extremely strong. Quarterly sales rose to $41.5 billion, reaching the fifth record in a row. Net profit was $28.9 billion. For the current fourth quarter, Micron is even forecasting sales of around $50 billion and further increasing margins.