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Samsung is one of the three top global players in the memory chip market. As a result, all have pivoted to long-term agreements to be able to sustain higher margins in years to come.
According to a new report from South Korea, the brand has locked up to 70% of its memory chip supply for long-term agreements that run till 2031. This means making big profits by the company as prices of phones won’t drop soon.
Furthermore, memory has been a cyclical market, as prices go up whenever supply is constrained and drops as soon as supply improves. The dynamics of the market have been changed by AI demand. Demand continues to rise with no enough supply, and will continue this way for at least for some years.
Memory makers are increasing production of higher margin HBM chips for AI over commodity DRAM. This move is definitely making prices to rise more. Also, they’re signing long-term agreements at the prevailing peak prices with rigid price floors to make sure they maintain healthy margins, even if in years to come, prices might drop significantly.
It’s worthy to note that the agreements require them to lock up supply. This is to enable them meet their commitments. Reports reveal that Samsung has allocated 70% of its memory production capacity for supply under the long-term agreements it has with the likes of NVIDIA and Microsoft.
This will run till 2031.This shows that in the short term, fewer chips are expected to meet supply needs. This will end up making the prices higher for all.
Source 1, source 2.