KT advances payments to suppliers amid soaring memory chip costs

KT is stepping in to support its subcontractors by providing advance payments for memory chip purchases, aiming to stabilize the supply chain amidst a sharp increase in semiconductor prices. The company announced on the 16th that it had paid a total of 14.5 billion won to two set-top box suppliers in April. This move is intended to help these companies secure necessary inventory at current prices and alleviate financial burdens as memory costs skyrocket.

This initiative marks the first time a South Korean telecommunications provider has offered such advance payments to its suppliers. A representative from Marasis, one of the recipient companies, highlighted the dramatic price increase: "The memory cost per set-top box, which was 15,000 won in early last year, is now around 100,000 won, a sevenfold increase." The proportion of memory costs in the unit price has also surged from about 10% to 70%.

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The memory cost per set-top box, which was 15,000 won in early last year, is now around 100,000 won, a sevenfold increase.

The rising costs are particularly challenging for small and medium-sized enterprises. Marasis's monthly operating fund for memory alone has ballooned from 1 billion won to 7 billion won, requiring over 20 billion won to maintain a four to five-month inventory. Without sufficient capital, these manufacturers face potential disruptions in production and delivery.

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Even when ordering 100 memory chips, only 50 to 60 are actually shipped. We try to secure inventory by purchasing as much as possible, thinking it's cheaper to buy today than tomorrow.

Industry experts attribute the price hike and supply crunch to major memory manufacturers prioritizing high-bandwidth memory (HBM) for AI and next-generation products, leading to reduced output of older memory types like LPDDR4. Demand for these older chips remains strong, driving up prices and intensifying competition for supply. "Even when ordering 100 memory chips, only 50 to 60 are actually shipped," the Marasis representative noted. "We try to secure inventory by purchasing as much as possible, thinking it's cheaper to buy today than tomorrow."

Beyond advance payments, KT has also implemented a system since 2023 to reflect raw material price fluctuations in its supply payments, another first among the major telecom firms. The company is considering further advance payments for memory purchases in the latter half of this year and next year, anticipating continued price increases. "The recent supply chain crisis is a structural challenge that cannot be solved by individual companies alone," said Kwon Hye-jin, head of KT's Supply Chain Management office. "We will continue to support our partners to enhance their competitiveness and ensure stable service delivery."

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The recent supply chain crisis is a structural challenge that cannot be solved by individual companies alone. We will continue to support our partners to enhance their competitiveness and ensure stable service delivery.