Bernstein Analysis: Can the $142 Billion Long-Term Order Hold Up the Memory Cycle?
Bernstein revisits long-term agreements (LTAs) in the memory industry, highlighting new contracts with purchase commitments, minimum prices, and financial guarantees signed by Micron and SanDisk. These aim to provide an earnings floor for the coming years.
Micron has 16 strategic customer agreements, with 14 representing approximately $100 billion in minimum revenue and about $22 billion in cash deposits/commitments. SanDisk has contracts for around $42 billion in minimum revenue and over $11 billion in guarantees. Combined, these ~$33 billion in guarantees make it more costly for major clients to walk away.
However, Bernstein models that the potential revenue needing protection over 3-5 years is around $5.2 trillion. The existing guarantees thus cover only about 0.6% of that scale. While LTAs provide a cushion, they cannot fully shield profits in a severe downturn, as clients may still find it cheaper to breach contracts if spot prices fall deeply below floor prices.
LTAs are most suitable for large, credit-worthy customers like U.S. cloud service providers with stable, high-volume AI infrastructure needs. Consumer segments (phones, PCs) and some Chinese clients are less likely to adopt them, leaving an estimated 30-50% of the DRAM/NAND market exposed to spot price volatility.
AI demand (e.g., HBM for training, storage for inference) supports higher valuations and makes LTAs more attractive for locking in high-demand customers. Yet, Bernstein stresses that LTAs soften, but do not eliminate, the memory cycle. Their true test will come in the next downturn, revealing whether clients honor contracts and whether guarantees provide sufficient pain to maintain supplier discipline.
marsbit07/21 07:32
