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Rising Memory Costs Force Smartphone Makers to Abandon Budget-Friendly Devices
Electronic Technology · Computer Communications · cnbc · 2026-09-11
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Soaring demand for AI-related memory chips is driving up production costs, leading manufacturers to phase out sub-$100 smartphones and pivot toward premium models.
What Happened
Impact of AI on Hardware Costs: The rapid expansion of artificial intelligence infrastructure has created a massive demand for memory components, forcing chipmakers to prioritize high-value products. This shift has severely constrained the supply of memory used in budget smartphones, causing manufacturing costs to spike significantly.
Shift in Market Dynamics: As memory now accounts for nearly 60% of the bill of materials for entry-level devices, producing sub-$100 smartphones has become economically unviable for major vendors. Consequently, global shipments for this segment have plummeted, with IDC data showing a nearly 60% year-over-year decline in the second quarter of 2026.
Strategic Pivot to Premium Segments: Leading Chinese manufacturers like Xiaomi and Oppo are aggressively moving up-market to protect margins, resulting in a notable increase in their average selling prices. Companies are increasingly focusing their portfolios on higher-end devices, such as foldable phones, which offer better profitability than the shrinking low-end market.
Long-term Pricing Outlook: Industry analysts suggest that smartphone prices are unlikely to return to previous levels, as memory manufacturers lack the incentive to expand capacity for lower-margin components. Even if the current supply crunch eases, experts expect that price increases will merely moderate rather than reverse, signaling a permanent shift in consumer electronics pricing.