The new storage reality: Companies secure chips for five years
More and more storage manufacturers are demanding long-term agreements. Sandisk reveals background information on billion-dollar guarantees.
(Image: Sandisk)
The world's largest storage manufacturers are using the current supply crisis to conclude long-term contracts with major customers. Up to five years instead of the previously usual 12 months are now running for more and more current agreements concerning working memory, NAND flash for SSDs, and hard drives. They underscore that the industry expects continued high demand, driven by AI data centers. A bursting of the bubble is not in sight.
Most recently, NAND flash and SSD manufacturer Sandisk spoke with analysts about so-called Long-Term Agreements (LTAs). Three new agreements concluded in the past quarter alone provide for a minimum purchase quantity worth around 42 billion US dollars over the next few years. This currently corresponds to almost two years of revenue; in 2024, it would have been six years of revenue.
Sandisk is pre-allocating more and more storage
The three contracts bind one-third of Sandisk's production volume in fiscal year 2027, which begins mid-calendar year. In the current quarter, two more agreements have already been added, and more are to follow. Customers are likely to be primarily cloud hyperscalers such as Google, Microsoft, and Meta, although Sandisk does not name specific ones. The more such supply agreements are concluded with data center operators, the less storage remains for end customers.
In addition to increasing minimum purchase quantities, LTAs typically define price ranges, but with flexibility: if prices fall industry-wide, customers would have room to negotiate, and vice versa for the manufacturer.
Long-term contracts have a stabilizing effect: If all storage manufacturers now conclude such agreements, price volatility will decrease. Prices are therefore likely to remain at a high level.
If the manufacturer cannot deliver enough storage or a customer wants to buy less than agreed, penalty payments are threatened. Five customers have jointly given Sandisk security guarantees of more than 11 billion US dollars. Before the storage crisis, this would have corresponded to 1.5 years of revenue.
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Same practice for DRAM and hard drives
Market observer Trendforce refers to various reports stating that DRAM giants Samsung, SK Hynix, and Micron are also increasingly switching to five-year contracts. Here, customers include not only hyperscalers but also manufacturers of AI accelerators, such as AMD and Nvidia. They are buying High Bandwidth Memory (HBM) in particular. Similar protective mechanisms are said to exist, as with Sandisk.
Hard drive manufacturers Seagate and Western Digital have already confirmed that they are sold out for 2026 and are increasingly concluding supply agreements for 2027 and 2028. The deals are likely to reach similar dimensions here in the future, as with NAND flash and DRAM. Competitor Toshiba does not comment publicly on sales because the company is now privately managed again.
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