Micron Technology is warning customers that those who decline to sign the company's new long-term supply contracts could find themselves pushed to the back of the line the next time memory chips run short, as the chipmaker moves to fundamentally restructure how it does business with its biggest buyers.

Sumit Sadana, Micron's chief business officer, laid out the company's new approach to what it calls Strategic Customer Agreements, or SCAs, during recent public remarks, including at the KeyBanc Technology Leadership Forum. Unlike the loosely binding long-term agreements memory chipmakers have historically offered, Micron's SCAs are structured as "take-or-pay" contracts: customers commit to purchasing specific volumes of memory chips every year through the end of calendar 2030, with no contractual way to back out. Most large SCAs run on five-year terms, while smaller customers, including several automotive suppliers, have signed three-year versions of the agreements.

Micron has said it has signed 16 SCAs so far, spanning data center, consumer and automotive customers, with more agreements signed since the company's most recent earnings report. Those contracts are backed by more than $22 billion in cash and related financial commitments, including nearly $18 billion in upfront cash deposits, and represent minimum revenue commitments Micron has pegged at roughly $100 billion. The company has said it expects SCAs to eventually cover about half of its total revenue, and pricing under the agreements is negotiated........

© International Business Times