Microsoft and Google are competing to sign long-term DRAM agreements with SK Hynix, with contracts worth tens of trillions of Korean won set to emerge.

Microsoft and Google are competing to sign long-term DRAM agreements with SK Hynix, with contracts worth tens of trillions of Korean won set to emerge.

The wave of investment in artificial intelligence infrastructure is reshaping global memory chip purchasing patterns. Microsoft and Google are seeking to sign unprecedented multi-year DRAM supply agreements with SK Hynix, with contracts not only guaranteeing price floor clauses but also introducing a prepayment mechanism—something never seen before in the memory industry.

According to sources in the Korean industry, SK Hynix and Microsoft are in the final stages of negotiating the terms of a long-term DDR5 supply contract, covering a three-year period starting this year, with a scale reaching tens of trillions of Korean won. Core terms under discussion include setting a price floor to prevent DRAM unit prices from dropping sharply during the contract period, and requiring buyers to prepay 10% to 30% of the total contract value as a deposit. SK Hynix is also negotiating similar long-term supply deals for high-bandwidth memory (HBM) and server DRAM with Google.

The structure of these agreements breaks the usual industry practices. A source familiar with the negotiations remarked: "The biggest difference in these long-term contracts is that hyperscale cloud service providers are willing to prepay a deposit—this is quite notable." Microsoft and Google have never entered into annual or multi-year supply agreements with memory manufacturers before, mainly because DRAM prices have always fluctuated wildly and were not suitable for fixed long-term pricing.

Supply shortages and price surges have made the "volume first" strategy inevitable. DRAM fixed transaction prices have risen for 11 consecutive months, with DDR4 contract prices soaring from $1.35 last March to $13 at the end of last month—a nearly tenfold increase. The market generally expects Samsung Electronics and SK Hynix to achieve record high financial results in the first quarter.

Unprecedented Contract Structure: Prepaid Deposits Are the Biggest Highlight

Long-term supply agreements (LTA) lock in purchasing volumes and prices in advance and are typically adopted when product supplies are tight or prices are rising sharply. However, such contracts have been extremely rare in the DRAM sector.

Because memory chips heavily depend on supply-demand cycles and exhibit significant price volatility, major tech companies have conventionally signed quarterly purchase agreements with manufacturers and rarely participated in annual or longer-term fixed price contracts. The three-year agreements proposed by Microsoft and Google are already groundbreaking in terms of contract duration.

The prepayment clause takes things even further. According to reports, the two parties are discussing a plan where buyers would prepay 10% to 30% of the total contract value. This means Microsoft or Google would pay SK Hynix tens of trillions of Korean won before product delivery, effectively allowing suppliers to lock in revenue ahead of time and share investment risk. The contract also includes a price floor clause to provide guaranteed minimum returns for sellers and hedge against future sharp DRAM price declines.

Moreover, Microsoft and Google are simultaneously negotiating similar deals with Samsung Electronics, while U.S. DRAM giant Micron Technology, ranked third globally, reportedly signed such a contract last month. This indicates that this wave of long-term agreements is spreading across the entire industry.

Volume Priority: AI Arms Race Intensifies Supply Anxiety

The root cause of tech companies rushing to sign volume-locking agreements lies in the global AI infrastructure investment boom, which has triggered a DRAM shortage.

A senior executive in the semiconductor industry commented: "The problem now is not just that prices are sky-high, but that it's extremely difficult to secure the DRAM volume itself."

According to DRAMeXchange, DDR4 fixed transaction prices have increased for 11 consecutive months, with monthly rises of up to 46% for PC DRAM. The general DRAM and HBM needed for AI servers are both in short supply, creating a substantial bottleneck for cloud service companies' data center expansion plans.

Analysts believe that as global AI infrastructure competition becomes more long-term in nature, top tech companies are shifting their procurement strategies from "price optimization" to "volume priority," and are willing to take on more rigid pricing risks and higher capital usage costs. This wave of LTA contracts essentially signals that tech companies now regard DRAM as a strategic resource reserve rather than a mere commodity purchase.

Samsung and SK Hynix Expand Production, Attacking Both HBM and General DRAM

Facing ongoing pressure from soaring demand, Samsung Electronics and SK Hynix have both launched new rounds of capacity investment plans.

Samsung Electronics is accelerating the production of sixth-generation (1c) DRAM for HBM4 at its main DRAM manufacturing base in Pyeongtaek, Gyeonggi Province; meanwhile, its Hwaseong campus is focusing on process conversion to fifth-generation (1b) 10-nanometer technology targeting SOCAMM and general DRAM modules.

SK Hynix is primarily responding to new HBM demand with its M15X campus in Cheongju, North Chungcheong Province; its headquarters campus in Icheon, Gyeonggi Province is also speeding up migration to advanced 1c DRAM process nodes.

Supply Shortages Push Quarterly Earnings Forecasts to Historic Highs

The direct beneficiaries of the DRAM supply shortage are Samsung Electronics and SK Hynix's financial performance. Multiple brokerages expect both companies to report record profits in the first quarter this year.

Meritz Financial Group, in an April 3 report, estimated Samsung Electronics' Q1 revenue at 122 trillion won, with operating profit at 54 trillion won—more than three times the previous record high of 14.12 trillion won in Q1 2022.

FnGuide predicts SK Hynix's Q1 revenue will reach 46.6252 trillion won, with operating profit at 31.5627 trillion won, an increase of about 4.2 times over last year's 7.4405 trillion won.

Analysts generally believe that as long-term supply agreements are realized and prepayment clauses improve cash flow, the visibility of memory manufacturers' earnings will further increase, providing a more solid fundamental support for Korea's semiconductor sector.

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