Micron joins rivals pitching AI deals as cure for memory's boom-bust cycle

By Stephen Nellis, Zaheer Kachwala and Aditya Soni

SAN FRANCISCO, June 25 (Reuters) - Memory chipmakers person for decades been trapped successful boom-bust cycles, with capableness buildouts hitting the marketplace conscionable arsenic request craters. Micron, Samsung and SK Hynix are present trying ‌to person investors this clip is different, arguing semipermanent deals volition support currency flowing adjacent if the datacenter roar bursts.

Micron ‌said connected Wednesday customers specified arsenic Nvidia had committed $22 cardinal to fastener successful supplies of representation chips, playing up immense maturation successful five-year "take-or-pay" deals that necessitate clients to either ​buy its chips oregon manus implicit cash.

The U.S. company's deals travel successful the footsteps of SK Hynix and Samsung, which person besides been signing semipermanent proviso agreements with their customers.

The moves are cardinal to winning implicit investors wary of the AI boom's durability, with representation stocks starring a $1 trillion-plus rout earlier this week stoked successful portion by valuation concerns.

"The main question heading into Micron earnings... was however durable representation pricing powerfulness truly is. What they ‌showed, done longer-term strategical agreements is that visibility ⁠is improving and immoderate downside hazard is getting pushed further out," said Jake Behan, ETF-provider Direxion's superior markets head.

"What matters from present is not whether representation pricing yet normalizes arsenic we cognize it apt will, it is ⁠about who captures and monetizes that pricing powerfulness portion it lasts."

Memory has go truthful captious to AI chips specified arsenic those made by Nvidia that customers nary longer dainty Boise, Idaho-based Micron arsenic a commodity supplier to beryllium played disconnected rivals for little prices, but arsenic a strategical spouse whose mill expansions ​they ​must underwrite to fastener successful supply.

Despite joining the $1 trillion valuation nine earlier this ​year, Micron reported an yearly nonaccomplishment of $5.3 cardinal arsenic precocious ‌as 2023, driven by a illness successful spending connected user electronics aft the frenzy of pandemic gadget upgrades.

"Customers person enactment billions of dollars connected Micron's equilibrium expanse arsenic a amusement of assurance and their committedness toward this caller concern model," the company's main concern officer, Sumit Sadana, told Reuters.

Still, adjacent with good-as-cash agreements successful hand, Micron said it volition instrumentality clip for it to physique retired caller factories, keeping supplies choky until astatine slightest 2027.

MEMORY CHIPMAKERS HAVE TRIED LONG-TERM DEALS BEFORE

To beryllium sure, the famously cyclical representation manufacture has tried to fastener successful semipermanent deals ‌before. But past attempts failed to creaseless ups and downs due to the fact that representation was ​a commodity, letting electronics makers swap suppliers and compression prices astatine will.