Micron, the memory chip manufacturer, has announced that it is experimenting with a new pricing model for its chip, called the Forward Pricing Agreement, to stabilize the price fluctuations now facing the semiconductor industry.
According to Sumit Sadana, Micron’s Chief Business Officer, the project is an “experiment,” and current and long-term agreements are based on volume, not prices. The forward pricing agreements have both volume and pricing.
When asked whether the contracts were enforceable, Sadana acknowledged that one or the other party would always be on the wrong side of the price. Sadana noted that Micron does not plan to reduce its gross margins in order to advance price agreements.
“I’m super excited to announce that a top 10 customer has already signed up on this model with us, a more than $500 million a year of revenue for a three-year agreement. There’ll be ups and downs, but the benefits ultimately outweigh the risks of actually doing an agreement like this,” Sadana said.