systems

Big buyers agree to deals that will deliver historically enormous margins and profits

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.

The CEO said 16 customers have signed SCAs and then explained why it’s worth locking into the deals even though they bake in such high margins.

“Our customers are recognizing that supply shortages in memory and storage will take considerable time to improve,” he said. “Even as we expect industry supply to improve gradually in 2028, we currently do not have line of sight as to when memory supply will be able to catch up with increasing demand.”

Even massive efforts to build new chip fabs aren’t much help, he said, because the increasing complexity of new memory types means it takes longer to build factories – and when they come online there still won’t be enough capacity to build both the high-bandwidth memory needed for AI and other types of NAND and DRAM.

“Supply is structurally constrained in its growth and ability to meet industry demand, despite our comprehensive efforts to increase supply,” he said.

Don’t assume that SCAs mean your suppliers get price certainty, because Mehrotra said the deals will account for 40 percent of Micron revenue – meaning the company is reserving most of its inventory to sell at prices it can negotiate.

The CEO did have a little good news in the form of predictions that Micron’s DRAM output in 2026 will “grow in the low- to mid-20s percentage range, slightly above our prior outlook.” He also revealed that the SCAs see customers pay up front, which helps Micron to fund its fab expansions.

Q3 results were also exceptional.

Revenue landed at $41.5 billion, a fifth consecutive quarterly revenue record and 346 percent year-over-year jump. DRAM revenue alone reached a record $31.3 billion, up 343 percent year-over-year. NAND revenue rose 361 percent year-over-year, to $9.9 billion.

Net income reached $28.9 billion, and consolidated gross margin came in at 84.9 percent.

Execs predicted even better results, offering Q4 guidance of $50 billion in revenue, gross margins hitting “approximately 86 percent”, and telling investors that the increased complexity of memory means future products will cost even more than Micron’s current kit.

But while Micron thrives, IT pros will toil to make workloads perform with less memory: Mehrotra said Micron expects sales of conventional servers will grow in the mid-teens percentages during calendar 2026 but predicted “modest reduction in average server DRAM content growth as customers focus on maximizing unit shipments amid a very tight allocation of memory.”

Investors liked what they heard: Micron’s share price popped 15 percent in after-hours trading. ®