Smartphone shipments hit 13-year low as AI chip crunch raises prices

Global smartphone shipments fell 11% in the second quarter to their lowest level since 2013, as an AI-driven memory chip shortage pushed handset prices higher and crushed consumer demand, according to early estimates from Counterpoint Research.

"What we are witnessing is not a temporary squeeze, but a tsunami-like shock originating in the memory supply chain, with ripple effects spreading across the entire consumer electronics industry," Francisco Jeronimo, who leads mobile device research at IDC, said in a report.

The average selling price of smartphones is expected to rise 14% this year to an all-time high of $523, IDC estimates, while Counterpoint sees a 6.9% jump. Memory chip prices have surged as AI data center operators consume a growing share of global DRAM supply. One large AI server uses as much memory as 1,000 high-end smartphones, according to Mehdi Hosseini, senior equity research analyst at Susquehanna International Group. DRAM prices rose 100% in the first quarter and are tracking to rise another 50% in the second quarter, Hosseini said.

The shortage is reshaping the smartphone market. Apple and Samsung, with their purchasing scale and long-term supply agreements, are best positioned to weather the storm, while smaller Android manufacturers face margin compression or potential extinction. IDC predicts 2026 sales will fall 12.9% to 1.12 billion units, the lowest in more than a decade, and that phones priced below $100 will no longer be viable to produce.

Memory Makers Prioritize AI Over Phones

The world's three largest memory chip suppliers — SK Hynix, Samsung and Micron — have shifted production capacity toward high-bandwidth memory used in Nvidia's AI accelerators, where margins are substantially higher than in consumer electronics. Team Group Chief Executive Gerry Chen said AI infrastructure now consumes between 40% and 50% of global memory supply, and that production capacity for 2026 and 2027 is already heavily allocated.

For smartphone makers, the consequences are stark. The bill of materials cost for low-end handsets priced below $200 has risen 20% to 30% since the start of the year, Counterpoint said. Mid-range and high-end devices have seen component costs climb 10% to 15%. Memory prices could rise another 40% through the second quarter of 2026, the research firm added.

Apple and Samsung Gain, Android Makers Squeezed

Apple has been stockpiling DRAM inventory and securing long-term supplier agreements for LPDDR5 and advanced mobile memory, giving it a buffer that competitors lack, according to reports from Yole Group and South Korea's Chosun Ilbo. The company has already raised prices on its high-end computers by $100 to $400, while Dell and Lenovo have increased laptop prices by 20% to 25%.

"Apple and Samsung are best positioned to weather the next few quarters," MS Hwang, research director at Counterpoint, said. "But it will be tough for others that don't have as much wiggle room to manage market share versus profit margins." Hwang said this dynamic will "play out especially" with Chinese smartphone makers competing in the mid-to-lower end of the market.

Some manufacturers may downgrade components such as camera modules, displays and audio, or reuse older parts to offset rising memory costs, Counterpoint said. Others may try to steer consumers toward higher-priced devices where margins are thicker.

The memory chip shortage is expected to persist through at least mid-2027, when new production capacity is expected to come online, according to Hosseini. Until then, consumers should expect higher prices and fewer choices, particularly at the low end of the market.

This article is for informational purposes only and does not constitute investment advice.