The wave of AI infrastructure investment is reshaping the global memory chip procurement model. Microsoft and Google are seeking to sign unprecedented multi-year DRAM supply agreements with SK Hynix. These contracts not only include price floor guarantees but also introduce a prepayment mechanism—a first in the history of the memory industry.
According to industry sources in South Korea, SK Hynix and Microsoft are in the final stages of concluding terms for a long-term DDR5 supply contract, with the agreement covering three years starting this year and worth tens of trillions of South Korean won. Core terms under discussion include setting a price floor to prevent significant drops in DRAM unit prices during the contract period and requiring the buyer to prepay 10% to 30% of the total contract value as a deposit. SK Hynix is also in negotiations with Google regarding long-term supply of High Bandwidth Memory (HBM) and general-purpose server DRAM.
The structure of these agreements breaks from the usual practices in the memory industry. An individual familiar with the negotiations stated: &#34;The biggest difference in this long-term contract compared to the past is that hyperscale cloud service providers are willing to prepay – this is quite noteworthy.&#34; Microsoft and Google have never before signed annual or multi-year supply agreements with memory manufacturers, primarily because DRAM prices are highly volatile and have historically been unsuitable for long-term price locking.
Supply shortages and soaring prices have made a &#34;volume-first&#34; strategy inevitable. The fixed transaction price for DRAM has risen for 11 consecutive months, with the contract price for DDR4 soaring from $1.35 last March to $13 at the end of last month, an increase of nearly tenfold. The market widely expects Samsung Electronics and SK Hynix to achieve record-high first-quarter earnings.
<h2>Unprecedented Long-Term Contract Structure: Prepayment is the Highlight</h2>
A Long-Term Supply Agreement (LTA) is a form of contract that locks in procurement volume and prices in advance, typically adopted when specific product supply is tight or prices are sharply rising. However, such contracts have been extremely rare in the DRAM sector.
Due to the highly cyclical nature of market supply and demand and significant price fluctuations, major tech companies have generally signed procurement agreements with manufacturers on a quarterly basis, rarely engaging in annual or longer-term fixed-price contracts. The three-year agreement proposed by Microsoft and Google represents a breakthrough in contract duration.
The prepayment clause goes a step further. According to reports, both parties are discussing a scenario where the buyer prepays 10% to 30% of the total contract value. This means Microsoft or Google would pay SK Hynix trillions of South Korean won before product delivery, effectively securing revenue for the supplier in advance and sharing investment risks. The contract also includes a price floor provision to offer the seller a guaranteed minimum, hedging against potential significant price drops in DRAM in the future.
Furthermore, Microsoft and Google are simultaneously pursuing similar negotiations with Samsung Electronics. Micron Technology, the world's third-largest DRAM manufacturer, reportedly completed contract signings of this nature last month. This indicates that the current wave of long-term contracts is unfolding on an industry-wide scale.
<h2>Volume First: AI Arms Race Intensifies Supply Anxiety</h2>
The scramble by major tech companies to secure volume-locked agreements stems from the DRAM shortage triggered by the global AI infrastructure investment boom.
A senior executive in the semiconductor industry stated: &#34;The problem now isn't just that prices have risen too high, but that DRAM volumes themselves are extremely difficult to obtain.&#34;
According to DRAMeXchange data, the fixed transaction price for DDR4 has shown an upward trend for 11 consecutive months, with monthly increases in PC DRAM reaching as high as 46%. Both general-purpose DRAM for AI servers and HBM are in short supply, posing a substantial bottleneck for the data center expansion plans of cloud computing companies.
Analysts believe that as the global competition for AI infrastructure becomes more long-term, the procurement strategies of leading tech companies have shifted from &#34;price optimization&#34; to &#34;prioritizing volume lock-in,&#34; and they are willing to bear higher risks of price rigidity and capital commitment costs to achieve this. This wave of LTAs essentially signals tech companies repositioning DRAM from a commodity purchase to a strategic resource reserve.
<h2>Samsung and SK Hynix Ramp Up Production, Targeting Both HBM and General-Purpose DRAM</h2>
In response to escalating demand, both Samsung Electronics and SK Hynix have deployed new rounds of capacity investment plans.
Samsung Electronics is accelerating the production of 10nm-class sixth-generation (1c) DRAM for HBM4 at its main DRAM production base, the Pyeongtaek campus in Gyeonggi Province. At the Hwaseong campus, it is focusing on converting to 10nm-class fifth-generation (1b) process technology for SOCAMM and general-purpose DRAM modules.
SK Hynix, centered around the new M15X factory in Cheongju, North Chungcheong Province, is primarily addressing new HBM demand. Its headquarters campus in Icheon, Gyeonggi Province, is also speeding up migration to the most advanced 1c DRAM process.
<h2>Supply Shortage Drives Quarterly Earnings Forecasts to Historic Highs</h2>
The direct beneficiaries of the DRAM supply shortage are the financial performances of Samsung Electronics and SK Hynix. Several brokerages expect record profits for both companies in the first quarter of this year.
According to a report released by Meritz Securities on April 3, Samsung Electronics' first-quarter revenue forecast is 122 trillion Korean won, with operating profit at 54 trillion Korean won—the latter being more than three times the historical high of 14.12 trillion Korean won in the same period of 2022.
FnGuide forecasts SK Hynix's first-quarter revenue at 46.6252 trillion Korean won and operating profit at 31.5627 trillion Korean won, an approximately 4.2-fold increase from 7.4405 trillion Korean won in the same period last year.
Analysts generally believe that with the signing of long-term supply agreements and the improvement in cash flow brought by prepayment clauses, the earnings visibility for memory manufacturers will further increase, providing a more solid fundamental support for the South Korean semiconductor sector.

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Driven by demand for AI infrastructure, Microsoft and Google are in talks with SK Hynix for a three-year DRAM supply agreement. The contract breaks industry norms by introducing a price floor guarantee and a 10% to 30% prepayment mechanism to ensure supply security. As DDR4 prices have soared nearly tenfold in a year, memory chips have become strategic reserve resources, pushing Samsung and Hynix's first-quarter earnings forecasts to record highs

- A surge in artificial intelligence infrastructure investment is reshaping global memory chip procurement, leading Microsoft and Google to seek unprecedented long-term DRAM supply agreements with SK Hynix.  
- These agreements incorporate price floor guarantees and prepayment mechanisms, indicating a shift from traditional procurement practices dominated by price volatility.  
- The increasing demand for memory chips is driven by an AI arms race, compelling major tech companies to prioritize securing supply over optimizing costs, thereby repositioning DRAM as a strategic resource.

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Microsoft and Google Vie for Long-Term DRAM Deals with SK Hynix, Trillions of Won in Contracts on the Horizon