© Reuters. FILE PHOTO: The logo of U.S. memory chip maker MicronTechnology is pictured at their booth at an industrial fair in Frankfurt, Germany, July 14, 2015. REUTERS/Kai Pfaffenbach
By Jane Lanhee Lee and Chavi Mehta
SAN FRANCISCO (Reuters) – Chipmaker Micron Technology Inc (NASDAQ:) on Thursday announced it was experimenting with a new pricing model for its chips called forward pricing agreements that would aim to stabilize the steep price fluctuations that plague the industry.
“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,” said Sumit Sadana, Micron’s chief business officer at the company’s investor day event.
He declined to project how much of the long-term agreements with customers would migrate to this new model of pricing, and emphasized that this was an “experiment”. He said the current long-term agreements are based on volume and not on prices. The forward pricing agreements have both volume and pricing.
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.
Sadana also said that Micron does not plan to lower its gross margins to push the forward pricing agreements ahead.
“There’ll be ups and downs, but the benefits ultimately outweigh the risks of actually doing an agreement like this,” said Sadana.