Samsung Electronics Proposes Multi-Year Chip Contracts

Samsung Electronics Co., Ltd. is seeking to overhaul its business model by moving toward multi-year contracts with major clients to navigate the volatile semiconductor market. Co-CEO Jun Young-hyun announced during an annual shareholder meeting in Suwon, South Korea, that the company intends to establish agreements spanning three to five years. This strategic shift is designed to protect both the manufacturer and its customers from the volatility of demand fluctuations as the industry enters a significant growth phase driven by artificial intelligence. Jun noted that the industry is currently experiencing an unprecedented supercycle fueled by massive investments in AI data centers. To navigate this landscape, the company is prioritizing stability over the traditional quarterly or annual contract cycles that have historically led to extreme peaks and troughs in revenue. > Accordingly, we plan to continuously seize opportunities arising from the AI cycle while preparing for various scenarios with a cautious view. The push for longer-term stability follows similar sentiments within the industry. Recently, SK Inc. Chairman Chey Tae-won suggested that SK hynix Inc. might also implement measures to stabilize DRAM prices, potentially through multi-year commitments. Together with Micron Technology, Inc., these firms dominate the global memory market, which has seen prices surge due to supply bottlenecks and high demand for AI-capable hardware. > It is now extremely important for the chip business to minimise mid-to-long-term business uncertainties and maintain a healthy memory supply and demand environment. Samsung’s financial performance has seen a dramatic turnaround, with shares rising 62% since the start of the year as earnings hit record highs. This recovery marks a sharp contrast to the previous year, when management apologized for falling behind in the AI chip race. The company has since strengthened its position as a critical partner for NVIDIA Corporation, particularly regarding high bandwidth memory (HBM) technology. Nvidia CEO Jensen Huang recently highlighted the partnership and praised the development of Samsung’s HBM4 chips. Despite the optimistic outlook, Jun cautioned that macroeconomic challenges remain, including potential tariffs and rising costs in consumer electronics sectors like mobile phones and home appliances. > However, risk factors still persist, including uncertainties in the global macroeconomic environment such as tariff issues and cost burdens in the set business. Internal pressures also persist as Samsung faces potential labor disruptions. Employees have expressed frustration over a widening pay gap compared to rivals like SK Hynix, where average annual pay saw a significant increase last year. While a strike has been authorized for May, Jun expressed confidence that the recovery in the chip market would allow the company to improve wage competitiveness and narrow the gap with its competitors.