As supply bottlenecks for AI semiconductors shift past high-bandwidth memory (HBM) and substrates to silicon wafers, the term of long-term supply agreements (LTAs) has lengthened to as long as 10 years from a standard 3 to 5 years. Wafer output expansion has stalled, while advanced packaging has increased wafer consumption. South Korean memory companies are also changing procurement strategies toward long-term lock-ins of 5 years or more and capacity expansion-linked contracts.

Last month, Micron provided GlobalWafers with $500 million in strategic financing and decided to support strengthening GlobalWafers' 300 mm raw silicon wafer manufacturing capability at its plant in Sherman, Texas. The two companies also signed a 10-year LTA. Industry officials view it as GlobalWafers' longest-ever contract, focusing on stabilising supply and advancing mass production.

Supply capacity is already tight. Doris Hsu (쉬슈란), chair of GlobalWafers, said in a recent earnings briefing that 12-inch advanced process lines are operating at virtually 100 percent capacity and that supplies of specialised wafers for AI, high-performance computing (HPC) and advanced packaging have tightened. She also mentioned that additional price increases from the second half would be unavoidable for volumes not tied up in LTAs, due to supply shortages and rising costs.

Contract duration has effectively become a way to secure volume. According to industry officials, it had been standard to manage a significant share of 12-inch prime wafer procurement under LTAs in 3 to 5-year terms. Micron's 10-year contract exceeds that benchmark by more than twofold.

South Korean memory companies' procurement strategies are also shifting. According to industry officials, since Micron moved first, South Korean memory companies are also showing a trend of increasing the share of 5-year-plus long lock-in contracts and capacity expansion-linked contracts with wafer manufacturers. Capacity expansion-linked deals work by having demand-side companies commit to volumes to bring forward suppliers' decisions to expand lines. The nature of contracts is changing from buying wafers to securing suppliers' production capacity in advance. The longer the term, the more demand companies can secure volume and prices stably, but they also bear the burden of taking on committed volumes if demand weakens.

Contract terms are also becoming more granular. Taiwan-based media reported that in recent LTA negotiations, clauses specifying delivery of wafers produced in certain countries or plants are increasing, reflecting supply chain resilience and geopolitical risks. It is a structure in which the production location is written into contracts in addition to volume and price.

◆South Korean memory industry shifts procurement strategy to linked contracts

The reason competition over contract duration is intensifying is that wafer supply is difficult to increase in a short period. With little capacity expansion in the 300 mm wafer market, prices are rising, and wafers are emerging as an essential bottleneck element that chipmakers must secure, Kiwoom Securities analysed. The global wafer market is dominated by the top five companies, and high customer qualification barriers and large-scale capital investment restrict new entrants.

But consumption is moving in the opposite direction and is rising quickly. As stacking HBM dies and applying large interposers become essential for producing AI accelerators, consumption per area of 300 mm prime wafers has increased by several times compared with the previous generation. Development and validation are also under way for non-round, square wafers (310 mm by 310 mm) to improve the space efficiency of advanced packaging.

As long-term contracts increase, uncontracted volumes have instead become harder to find. GlobalWafers signalled price increases in the second half for non-LTA volumes. For product segments with rising wafer quality requirements, such as HBM4 and 300-layer-plus NAND flash, worsening procurement conditions are expected to have a greater impact on costs and delivery schedules.

In addition, as wafers are linked to memory yields, competition to secure wafers in advance has intensified. For HBM4 and NAND products now approaching full-scale mass production, yield declines due to warpage, in which wafers bend irregularly, continue to be raised as an issue. For that reason, Hanwha Investment & Securities analysed that memory makers' HBM4 yields are understood to be significantly lower than the previous HBM3E. An industry official said, "How completely memory companies can turn wafers secured in advance into products has become intertwined with procurement strategy," describing the current situation.