Micron Technology Inc (MU.O) stated on Thursday that it was testing a new pricing model for its chips called forward pricing agreements, which aims to smooth the industry’s high price volatility.
Micron is launching a new pricing experiment to ensure long-term stability
He declined to speculate on how much of the long-term contracts with customers will be migrated to this new pricing model, emphasizing that this was a “experiment.” existing long-term contracts are predicated on volume rather than price. The forward pricing agreements have both volume and pricing.
At Micron’s investor day presentation, Sumit Sadana, the company’s chief business officer, said, “I’m really thrilled to say 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.”
When asked about whether the contracts would be enforceable Sadana acknowledged that one party or the other would always be on the wrong side of the price.
“There’ll be ups and downs, but the benefits ultimately outweigh the risks of actually doing an agreement like this,” said Sadana.
Sadana also said that Micron does not plan to lower its gross margins to push the forward pricing agreements ahead.
Reporting By Jane Lanhee Lee in San Francisco, and Chavi Mehta in Bangalore Editing by Nick Zieminski
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