As demand for memory from artificial intelligence (AI) data centers surges, the smartphone market is feeling the impact on pricing. Analysts indicate that the supply shortage and rising component costs are particularly affecting lower-end smartphones, which typically have lower profit margins.
According to Reuters on September 17, global manufacturers of mid-range smartphones and laptops anticipate that the memory supply crisis will persist at least until 2027, prompting them to adjust product designs and sourcing strategies. SK Hynix has warned that 2027 could be one of the most challenging years in the industry’s history, with demand likely to exceed supply capabilities even beyond that point.
The impact is expected to be especially pronounced in the budget smartphone segment. Market research firm Counterpoint Research predicts that global smartphone shipments will decline by 14.3% this year, marking the largest annual drop on record. Products priced under $200 are facing the most significant pressure from rising memory costs, with the effects also spreading to the $200 to $600 price range.
Lower-priced devices struggle to pass on rising component costs to consumers. Raymond van Eck, CEO of Dutch smartphone company Fairphone, explained to Reuters that for a smartphone priced around $400, memory can account for nearly 60% of the total component cost. This means that if memory prices rise, budget models will find it increasingly difficult to maintain profitability without raising prices or lowering specifications.
Indeed, smartphone prices are already on the rise. Counterpoint reports that the average price of smartphones sold worldwide has increased by about 15% this year, with new models launched this year priced an average of 25% higher than those released in the same period last year. Some manufacturers are responding by reducing storage capacity or camera specifications, or by reintroducing relatively inexpensive 4G models in certain markets.
In addition to memory, there is upward pressure on the prices of application processors (APs), which serve as the brain of smartphones. Bloomberg reported in July that Qualcomm notified its customers of price increases in the double digits for products shipped after September 1. Following this, Cristiano Amon, CEO of Qualcomm, confirmed to Reuters that prices would rise starting in September, citing increased costs across the supply chain, including memory.
The impact on consumer prices is already evident. Apple recently raised the prices of its existing iPhones in India by as much as 41%. The base model iPhone 17 saw a price increase of about 21%, while the 1TB iPhone Air model rose by 41%. However, in India, local factors such as import costs and taxes also influence prices, making it difficult to attribute these increases solely to AI-driven memory shortages.
As the supply crisis continues, manufacturers are adapting their strategies. Finnish smartphone maker Jolla has altered its product designs to accommodate various memory components, while laptop manufacturer Framework has enabled the reuse of memory from existing devices in new products.
Counterpoint warns that if current trends persist, the sustainability of the low-cost smartphone market may be at risk. If new product prices continue to rise, manufacturers may reduce the number of budget models they produce and focus on higher-end products, or consumers may shift towards used or refurbished devices and repair their existing smartphones.
The competition for memory, which began in AI data centers, is now starting to affect the choices and prices available to everyday consumers in the smartphone market.
* This article has been translated by AI.
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