Amid De-Leveraging Impact, Semiconductor Industry Shifts from Cyclical Boom to 'Order-Driven' Era of Long-Term Contracts

As competition in artificial intelligence (AI) infrastructure investment intensifies, the global semiconductor industry is undergoing a profound structural transformation. The traditional 'cyclical' model, driven by supply-demand fluctuations and price cycles, is gradually shifting toward an 'order-driven' business model centered on long-term supply agreements (LTAs). Corporate pricing strategies are also evolving—from a focus on price elasticity to an emphasis on the actual fulfillment of orders.

Industry Logic Shifts from Price Elasticity to Order Fulfillment

According to industry analysis reports, the fundamental business logic of the semiconductor and related hardware sectors has qualitatively changed. Yonghee Han, a researcher at Growth Research, stated: 'The key factors determining corporate value are no longer just whether agreements are signed, but rather the minimum purchase obligations (Take-or-Pay), price floors, scale of prepayments, and the continuity of customer investment embedded in the contracts.'

This shift is particularly evident in the second half of 2026. Analysts believe that market pricing is increasingly prioritizing order fulfillment, capacity deployment, and delivery reliability. A research report from CITIC Construction Investment Securities indicates that the logic of computing power will be restructured in the second half of 2026: while price increases may slow at the margin, the weight of 'order fulfillment' and 'capacity release' continues to rise.

Long-Term Contract Penetration and Prepayment Systems in Memory Sector

In the memory sector, Samsung Electronics and SK Hynix are actively expanding binding supply agreements. Samsung plans to bring 60% to 70% of its memory production capacity under long-term contracts, typically spanning five years with rolling reviews. Samsung has already completed agreements with five major global data center customers and is in final-stage negotiations with another five large AI-related clients.

SK Hynix is adopting a similar strategy, having finalized negotiations with approximately 10 customers. Song Hyun-jong, President of SK Hynix Corporate Center, emphasized that long-term agreements 'are not just about supply volume, but also support the development of next-generation memory aligned with customers’ technology roadmaps.'

Micron Technology (MU-US) is also demonstrating a strong transformation trend. CEO Sanjay Mehrotra stated that strategic agreements already signed could eventually account for more than half of the company’s revenue. To strengthen contract enforceability, Micron is requiring customers to pay over $22 billion in prepayments during the contract phase, significantly reshaping the industry’s structure.

Supply Chain Expansion Across Sectors

The long-term contract model is no longer limited to memory but is spreading to multilayer ceramic capacitors (MLCCs), packaging substrates, power equipment, and the automotive sector. For example, Samsung Electro-Mechanics signed long-term contracts worth 1.5 trillion KRW and 1.1 trillion KRW with HD Hyundai Electric, respectively.

In the automotive market, Micron has signed long-term supply agreements with Ford (F-US), General Motors (GM-US), and Hyundai Mobis. This reflects how, with growing demand for advanced driver assistance systems (ADAS) and infotainment systems, memory competition is expanding from cloud service providers to the automotive industry.

Risk Reassessment and Profit Sustainability

Although the market has recently fluctuated due to de-leveraging in South Korea’s memory sector, analysts generally view this not as a reversal of AI demand, but as a reassessment of price sustainability. Choi Tae-won, Chairman of the SK Group, clearly stated that current AI semiconductor prices are at 'abnormally high levels' and should be stabilized through expanded production and increased supply. This indicates that manufacturers’ goals are shifting from 'emphasizing supply discipline' to 'stabilizing prices and scaling up mass production.'

For suppliers, long-term contracts provide better visibility for capacity investment; for customers, while flexibility is reduced, they secure access to scarce production capacity. Park Joon-young, an analyst at Hanwha Investment & Securities, noted: 'Multi-year supply contracts remain highly stable even during economic downturns, as customers who unilaterally breach contracts may face worse procurement terms during the next capacity shortage.'