Samsung Electronics, SK Hynix inventories surge 20-30% in six months as memory LTAs spread

Long-term supply agreements between memory chipmakers and their customers are spreading rapidly as a severe memory shortage has pushed next year's allocations to sell out well ahead of schedule.

Having locked in long-term demand, Samsung Electronics and SK Hynix have been aggressively building up raw materials and work-in-progress goods in preparation for future production and shipments, driving a sharp rise in their inventory assets.

According to semiannual reports the two companies filed with the Financial Supervisory Service on Tuesday, their combined inventories grew by more than 22 trillion won ($15.5 billion) in the first half of this year compared with the end of last year.

While rising inventories are typically associated with sluggish sales, analysts broadly agree that the current buildup reflects preemptive stockpiling of raw materials and work-in-progress goods to meet future production and shipment needs — not a pile-up of unsellable stock — given the explosive demand environment.

Supporting that view, inventory valuation allowances — reserves set aside against the risk that goods cannot be sold at full price — fell by about 660 billion won across the two companies. The decline signals that both firms expect their stockpiles to sell at full value, reducing the need for such provisions.

At Samsung Electronics, total inventories — spanning semiconductors, mobile phones and other products — rose 35.6%, from 52.64 trillion won at the end of last year to 71.39 trillion won at the end of June, an increase of 18.75 trillion won.

Looking only at the semiconductor (DS) division, inventories climbed 32.1%, from 28.81 trillion won to 38.06 trillion won, an increase of 9.25 trillion won. Within that, work-in-progress goods — products currently moving through the manufacturing process — grew by 7.64 trillion won, from 22.07 trillion won to 29.71 trillion won.

Inventory valuation allowances at Samsung's semiconductor division fell by 579.9 billion won, from 5.84 trillion won at the end of last year to 5.26 trillion won at the end of June. The allowance ratio — provisions as a share of gross inventory — dropped from 10.0 percent to 6.9 percent.

SK Hynix tells a similar story. The company's inventories rose 25.9%, from 14.29 trillion won at the end of last year to 17.99 trillion won at the end of June, an increase of 3.7 trillion won.

Work-in-progress goods grew 20.3%, from 9.21 trillion won to 11.08 trillion won, while raw materials jumped 61.9%, from 1.49 trillion won to 2.41 trillion won.

SK Hynix's inventory turnover ratio also improved, rising from 2.8 times to 3.1 times. A higher turnover ratio means inventories are converting into sales more quickly and spending less time in the warehouse.

Inventory valuation allowances at SK Hynix fell by 81.5 billion won, from 494.9 billion won at the end of last year to 413.4 billion won at the end of June. The allowance ratio declined from 3.35 percent to 2.25 percent.

Analysts say the memory industry — long defined by adjusting production and inventory in response to short-term market conditions — is transforming into one that plans production and investment around confirmed, locked-in demand.

According to industry sources and foreign media including Taiwan's Digitimes, next year's allocations from the three major memory makers were already sold out as of the first half of this year. Buyers are said to have paid deposits in advance to secure supply.

NAND supply is somewhat less tight than DRAM, but next year's allocations are being absorbed quickly. Samsung Electronics, Micron and SanDisk have already sold out their NAND supply for next year, while Kioxia and SK Hynix are expected to finalize their supply plans by the end of this month. The industry views July and August of this year as a pivotal window for securing 2027 allocations.

Hyperscalers and other major buyers found themselves scrambling to secure not only HBM (high-bandwidth memory) but also DRAM and NAND this year as shortages spread across all memory categories. That acute supply crunch has pushed leading companies to sign three-to-five-year long-term supply agreements to ensure stable procurement.

The memory industry's biggest structural weakness has long been its nature as a classic cyclical business, with prices and earnings swinging sharply depending on supply and demand conditions.

The three major memory makers are now actively using long-term supply agreements to reduce uncertainty around prices and volumes and build a more stable earnings base.

Industry observers say the sector is shifting away from the classic cyclical model — where prices and volumes fluctuate with short-term market conditions — toward a structure in which production and investment plans are built around long-term demand, reducing overall volatility.

Market research firm TrendForce said Samsung Electronics, SK Hynix and Micron are all in negotiations to sell HBM at higher prices in 2027, and that HBM demand will continue to outpace supply that year.