Surging AI Investment Drives Spread of Long-term Contracts and Shifts in Trading Practices for MLCC, etc.

As investment in artificial intelligence (AI) infrastructure surges, changes are appearing in transaction methods between companies. Long-term supply agreements (LTAs), which involve pre-contracting to sell more than half of key products such as memory semiconductors to secure future production capacity, are spreading rapidly across the entire supply chain, including MLCCs and transformers, not just memory semiconductors.

Samsung Electronics revealed that it is locking up 60 to 70% of its memory production capacity through long-term supply agreements (LTAs). SK Hynix announced that it is in the final stages of LTA negotiations with about 10 customers, including key clients. Micron, the world's third-largest memory maker, is expanding 'Strategic Customer Agreements (SCAs),' which strengthen binding force compared to existing LTAs.

Changes are also occurring in contract conditions. Binding force is being increased by combining minimum purchase volumes, price floors or price bands, and advance payments or deposits over a contract period of approximately 5 years. A 'take-or-pay' structure, where a certain payment is made even if the customer does not take the agreed volume, is also being utilized. Samsung Electronics stated that it included a significant amount of advance payments of a deposit nature in the contract conditions and has already received one-quarter of that amount.

This so-called 'forward-order sales' is spreading across the entire AI infrastructure supply chain, beyond memory, to multilayer ceramic capacitors (MLCCs), semiconductor substrates, transformers, and test sockets. Independent research firm GtR (Growth Tree Search) recently cited Samsung Electro-Mechanics, package substrate firm Ibiden, power equipment firm HD Hyundai Electric, and test socket firm ISC as companies mentioned in relation to LTAs.

Samsung Electro-Mechanics has signed long-term contracts for high-spec MLCCs with about 10 customers, including hyperscalers and major semiconductor firms, and signed a 1.5 trillion won supply contract for silicon capacitors with global Big Tech firms. HD Hyundai Electric signed a 1.1 trillion won long-term contract for power and distribution transformers with a global tech firm and is discussing long-term package contracts for data center power and distribution equipment with three Big Tech companies.

Samsung Electro-Mechanics is discussing strategic long-term supply agreements including customer investment support for FC-BGA, and ISC is promoting LTAs with global Big Tech firms alongside plans to build dedicated production lines based on customer advance payments. Han Yong-hee, a researcher at GtR, forecast that ISC's sales proportion based on LTAs this year will exceed half of its total sales.

The approach of sharing not only product purchases but also investment risks in production facilities—where customers bear part of the expansion investment and suppliers guarantee a certain volume—is interpreted as a structural change that increases the visibility of future revenue from the supplier's perspective.