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.
This is just like selling / buying options in any other industry, e.g farming to buy something at a specified price in the future.
They’ve agreed to buy XYZ product at 123 time at a price between $100 and $200.
If prices plummet, they’ve still agreed to buy it at $100 (similar to selling an options $100 Strike PUT), but if prices skyrocket, they don’t need to pay more than $200 (similar to buying an options $200 Strike CALL)
Anything in between is just the price, so if it’s $150 then its just $150
It’s not exactly the same as using options, but the rough idea.
I’ve never signed a contract to buy something 5 years from now at a certain price.
You’re not a company dealing with massive inventories :P
It’s a real thing.