wishful thinking from MU holders. These LTAs or SCAs are just hedges on the prices going even higher. Once spot prices start dropping, all of the agreements will be broken in a millisecond. The break up fees have already been paid! There's absolutely nothing the buyer has to do, but to simply not buy at the inflated old price and instead buy from someone else at the new, lower price.
Does anyone really think that there is any agreement in the world that will keep companies paying $1000 for a product priced at $20 on the market? The larger the gap the larger the incentiv to break the agreement.
Huh. It looks like Micron managed to lock in these contracts because companies are scared that prices will continue to rise. But in doing that, Micron has managed to lock themselves in a comfortably high floor price, potentially for longer than the boom is going to last. Big win for Micron.
As long as I've been an adult, hardware was a commodity, and software was where the value was. Software could capture most of the value that was in the total supply chain.
Now, with AI, software becomes less able to demand the margins it once did.
Meanwhile, the history of low margins of hardware have created a situation where there are so few players able to demand now software-style high margins.
Hardware has always been valuable but was unable to capture it's value. Those days might be over.
I hope this encourages people who would build software companies to look to hardware. A lot of fun challenges there. Deeply technical, interesting ones. And now solutions will pay.
This agreement puts a floor on the price that Micron can sell their chips at, and a ceiling on the price that tech companies buy them.
Micron wants the floor, so they can invest in more fab capacity without going bankrupt if there's a memory glut.
Tech companies want a ceiling so they can keep selling their products even if there's a shortage.
If there's a glut, the tech companies will just resell these chips at a loss, or take a bath on their $22 Billion of deposits. It doesn't "lock in high prices" for consumers, just the producers.
I agree. But Micron says it wants to end the boom-bust cyles in the memory chip business for good. It won't work.
A higher price floor for longer creates an incentive for competitors to bring more capacity online. The eventual supply glut will be even bigger.
The cyclicality of the semiconductor business (especially for simpler chips) is a result of the fact that inventory can build up. That hasn't changed and it never will.
At some point would it be more cost efficient to replace DRAM by SRAM or some other technology and use standard cpu/gpu silicon wafers to build ram chips ?
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[ 0.84 ms ] story [ 34.0 ms ] threadDoes anyone really think that there is any agreement in the world that will keep companies paying $1000 for a product priced at $20 on the market? The larger the gap the larger the incentiv to break the agreement.
They are in saas metrics territory in terms of margins, this is insane.
Why not just sell on the open market, and let traders and financiers and all their prediction models give you the best possible price?
Now, with AI, software becomes less able to demand the margins it once did.
Meanwhile, the history of low margins of hardware have created a situation where there are so few players able to demand now software-style high margins.
Hardware has always been valuable but was unable to capture it's value. Those days might be over.
I hope this encourages people who would build software companies to look to hardware. A lot of fun challenges there. Deeply technical, interesting ones. And now solutions will pay.
This agreement puts a floor on the price that Micron can sell their chips at, and a ceiling on the price that tech companies buy them.
Micron wants the floor, so they can invest in more fab capacity without going bankrupt if there's a memory glut.
Tech companies want a ceiling so they can keep selling their products even if there's a shortage.
If there's a glut, the tech companies will just resell these chips at a loss, or take a bath on their $22 Billion of deposits. It doesn't "lock in high prices" for consumers, just the producers.
A higher price floor for longer creates an incentive for competitors to bring more capacity online. The eventual supply glut will be even bigger.
The cyclicality of the semiconductor business (especially for simpler chips) is a result of the fact that inventory can build up. That hasn't changed and it never will.