How the Memory Chip Shortage Is Fueling a Smartphone Market Decline
The global smartphone market decline driven by a memory chip shortage is a shift in which rising DRAM and NAND costs make new handsets more expensive, extend upgrade cycles, and push cost-conscious buyers toward second-hand phones instead of fresh models. Research firms now expect global smartphone shipments to fall by about 15 percent this year as memory supply is redirected toward AI servers. Counterpoint Research and UBS data show that global smartphone unit sales were already down 6 percent year-on-year by April, with every major region reporting lower sell-through. At the same time, IDC warns that this is "not a temporary squeeze, but a tsunami-like shock originating in the memory supply chain" and forecasts a 14 percent jump in average selling prices to USD 523 (approx. RM2,400), deepening the smartphone market decline and reshaping how people buy phones.
AI Infrastructure, Memory Supercycle, and Rising Phone Prices
Behind the memory chip shortage is a flood of AI infrastructure spending that is reshaping semiconductor production priorities. Hyperscalers are set to spend USD 715 billion (approx. RM3.3 trillion) on AI infrastructure in 2026, and that hardware is hungry for high-bandwidth memory. Samsung, SK Hynix, and Micron have shifted capacity toward these higher-margin AI components, leaving smartphone makers short of conventional DRAM and NAND. DRAM prices rose about 90 percent in the first quarter alone, and CCS Insight notes that memory now accounts for more than 30 percent of the bill of materials in some smartphones. The result is sharply rising phone prices, with some entry-level devices seeing sticker price increases of more than 50 percent. Analysts describe this as a memory "supercycle" that could last until 2028, meaning the pressure on device pricing may persist for years.
From Processor Wars to Cost-Driven Compromises
The smartphone market used to be driven by processor performance, camera upgrades, and design changes; now purchasing decisions are increasingly cost-driven. As DRAM and NAND prices surge, memory can represent up to 20 percent of a low-end phone’s cost and could approach 40 percent, forcing manufacturers into difficult trade-offs. Some brands try to hold price points but cut memory capacity, which risks poor user experience. Others raise prices and accept lower sales volumes. Meanwhile, upgrade cycles were already lengthening: the average smartphone lifecycle in one major market has stretched close to four years, as incremental performance gains feel less compelling. AI features have not yet changed this pattern, with surveys showing that battery life, storage, and durability still matter more than on-device AI. The memory chip shortage is turning a mature market into one where affordability beats specifications for many buyers.
Why Budget and Mid-Range Phones Are Hit Hardest
Budget and mid-range smartphones are the weak points in this memory-driven squeeze because memory makes up a larger share of their overall cost. CCS Insight notes that some entry-level devices have experienced price jumps of more than 50 percent as DRAM and NAND costs climb. In one key developing market, the sub-USD 100 (approx. RM460) segment collapsed 59 percent year-on-year in the first quarter, while phones under a local threshold became uneconomical for many brands to produce. This "forced premiumization" nudges sales toward mid-premium and premium tiers, which did grow, but not enough to offset the volume collapse at the bottom. Manufacturers either exit low-end price bands or ship far fewer units, accelerating smartphone market decline in price-sensitive regions. The result is a shrinking addressable market for new devices and rising pressure on consumers that depended on affordable models.
Second-Hand Phones Rise as New Shipments Fall
As rising phone prices spread across segments, more consumers are turning to second-hand phones to stay connected without taking on premium costs. CCS Insight reports that while the primary smartphone market contracted 4.4 percent in the first quarter, the organized secondary market grew by 4 percent over the same period. The firm expects second-hand smartphone sales to grow 15 percent this year, even as new smartphone shipments fall by the same percentage. Used devices offer familiar brands and adequate performance at lower prices, making them attractive when new models become less affordable. However, there is a catch: second-hand supply depends on people trading in older phones, and replacement cycles are lengthening as users keep devices for more than four years. That means the growing demand for second-hand phones may soon outpace supply, adding another twist to the smartphone market decline story.
