AI customers of various forms have given Samsung and SK hynix new opportunities to reach staggering heights through insatiable DRAM demand. However, these gateways can also become perilous pitfalls if companies aren’t careful, which is why both memory manufacturers had to overhaul their entire business models to withstand those recession cycles. Here’s how they did it.

The memory industry has historically been extremely vulnerable to those aggressive “boom-and-bust” cycles, and Samsung is no stranger to those back-breaking losses. Now, with the Korean giant and SK hynix having the upper hand thanks to the AI boom, they have successfully secured their long-term future through multi-year commitment contracts with a multitude of customers.

Previously, Samsung’s and SK hynix’s memory sales strategy was dependent on a short-term, volatile purchasing model that exposed both manufacturers to price shifts. Rumors have also claimed that there were occasions when companies like Apple could outright refuse to accept additional DRAM shipments that Samsung had manufactured specifically for them, simply because demand had caught up to supply.

Now, the tide has shifted in Samsung’s and SK hynix’s favor; by drafting various contractual safeguards, these DRAM firms have essentially insulated themselves from potential economic downturns and demand fallout. We’ve previously reported that Samsung has secured a minimum of 5-year agreements with AI customers to provide memory supply, with one of the conditions being that the manufacturer would receive timely advance payments.

Assuming a recession does materialize, at least Samsung would be well compensated for its manufacturing efforts. These LTAs aren’t limited to DRAM supply; they also cover HBM and enterprise SSDs. Fortunately, it’s not as if the Korean technology behemoth has turned into a greedy corporation because its contracts mention that customers can renegotiate after every 12 months, and if they don’t like the company’s terms, there are always other memory makers looking to accommodate new clients.

Then again, the only other alternatives remaining are SK hynix, Micron, and China’s CXMT. According to a previous report, CXMT’s DDR5 is pricier than Samsung’s , which means that it’s not an economically viable option, while the remaining options won’t progress without LTAs in place, coupled with hefty deposits. In short, both Samsung and SK hynix have transformed a risky and short-term business model into a successful one that protects suppliers from external factors.

Whether these conditions will remain in place after memory supply and demand stabilize, we don’t know, but given that shortages will persist until 2028, Samsung and SK hynix have plenty of time to make adjustments.

News Source: ZDNet

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