Memory-maker Micron has found a way to keep prices for its products sky-high for another five years, by signing 16 “strategic customer agreements” (SCAs) that include a floor price the company says comes with “a very robust gross margin for Micron, well above our peak quarterly margins in any past cycle.”
Micron CEO, president and chairman Sanjay Mehrotra explained the SCAs in prepared remarks delivered during the company’s Q3 earnings call. He explained that Micron has signed 16 SCAs, most of them covering 2026 to 2030, and that they involve a commitment to buy a certain quantity of product and pay for it in a pricing band that has a floor and a ceiling price. The floor price covers the historically high gross margins mentioned above, and the ceiling price means those who commit to an SCA are insulated if memory prices go even higher.
It’s not just the price. If you get excavators to your new chip factory plot today to start building foundations it’ll take several years until you get first chips out of the line after everything is calibrated and ready to go. By then you’ve thrown few hundred millions on the building, machines and all the physical stuff. Hired and trained workers, managed supply chains and built a system which is pretty expensive to keep running.
So, you’re betting quite a lot of money and time against that the market stays like it is for the next 10 years (give or take) to just break even. If the bubble bursts in 5 years you have incomplete factory without potential market and a metric shitload of debt on your company. And that’s the same odd you’re betting against when trying to raise funding. Venture capital understands this risk too pretty well and that’s why everyone and their dogs aren’t building chip factories right now.
Saw a great documentary on the company that makes all the memory fab devices. They aren’t quite as bad a processors, There is only one company left that makes the house sized machines, but they’re largely self contained. Still need a clean room, but you probably don’t need as huge of a factory.