The New Cost of Cheap: AI vs. Your Next Phone
The current budget smartphone crisis is a supply-and-demand shock where AI data centers consume most of the world’s DRAM, driving memory prices so high that components now dominate the cost structure of cheap phones and force manufacturers to raise prices, cut specs, or abandon the low-end market altogether. That is the uncomfortable truth behind budget phone prices rising: the AI boom is colliding with everyday consumer needs. This is not a temporary blip. Industry watchers warn the DRAM supply situation will worsen for consumer electronics next year, with a grim future for budget handsets expected around 2027. At the same time, rising memory prices are already making budget smartphones commercially unviable to produce, pushing many users toward delayed upgrades, pricier devices, or second-hand phones. In plain terms, AI chip demand smartphones are reshaping the affordable phone market, and buyers will carry the cost.
How AI Data Centers Are Starving Phone Makers of DRAM
The core problem is a DRAM chip shortage phones cannot escape. Explosive demand from AI infrastructure means chipmakers are prioritizing high-bandwidth memory for data centers, cutting capacity for the older DRAM used in smartphones. Thanks to AI centers gobbling up existing DRAM shipments, more than half of global memory supply will be used in AI computing by the end of 2026, with levels expected to exceed 60 percent soon after. When AI hardware alone can claim most annual production, phone makers are left fighting for scraps. DRAM prices have surged by as much as 700% since 2022 and three memory suppliers control about 90% of the market. In this environment, manufacturers’ main priority is to secure as much supply as possible rather than negotiate prices. Even partnerships with alternative DRAM suppliers are expected to reduce supply risk, not prices, meaning the basic economics will stay hostile to cheap phones.
When Memory Eats the Phone: Why Budget Models No Longer Add Up
For affordable devices, the math has stopped working. Omdia estimates memory costs accounted for almost 60 percent of the total bill of materials in sub-USD 400 (approx. RM1,840) smartphones in early 2026 – nearly double the share from late 2025. In phones priced below USD 99 (approx. RM455), memory now exceeds 64% of component costs. When one part of the phone dominates the budget, every extra gigabyte of RAM or storage becomes a margin-killer. Manufacturers have already trimmed cheaper phones with low-cost displays, sensors and radio modules, leaving little room to cut anything besides memory itself. Rising memory prices are making budget smartphones commercially unviable to produce, especially where margins are thin and buyers are sensitive to price hikes. At the same time, storage costs in some low-end brackets are forecast to reach 60% of the device price, making it almost impossible to generate profit without big hikes. That is why budget phone prices rising is less a choice and more a survival move.
Fewer Budget Models, Lower Specs, Higher Prices
Faced with this memory squeeze, smartphone brands have three options: exit the budget segment, pass costs on, or slash specifications. Many are choosing a mix of all three. Sub-USD 400 (approx. RM1,840) smartphone shipments are expected to drop more than 22% year-on-year, signalling an affordable phone market shrinking fast as companies pivot away from low-cost offerings. Research also suggests overall smartphone shipments will fall to their lowest levels in more than a decade. To protect thin margins, several well-known Android brands are opting for price increases in mid-to-low-end lines. Others are cutting features: switching from newer LTPO panels back to cheaper LTPS displays, using simpler camera setups, or relying on older-generation processors. Analysts warn this could reverse years of progress where budget phones gained near-premium specs, with RAM configurations and storage capacities stepping down instead of up. In short, AI chip demand smartphones is starting to show up as worse hardware or higher prices at the low end.
What This Means for Buyers: Delay, Trade Down, or Go Used
For ordinary users, the impact is clear: fewer choices, more compromises, and a slower upgrade cycle. Rising memory prices are making budget smartphones commercially unviable, forcing many buyers to delay upgrades, pay more for higher-tier devices, or turn to the second-hand market instead. It is no surprise that people are holding onto phones longer, with average lifetimes already above four years and expected to stretch further before the decade ends. If manufacturers reduce their presence in the sub-USD 400 (approx. RM1,840) category, consumers will meet fewer options and higher prices across Android and other platforms. In the near term, the best value may be discounted previous-generation phones rather than new budget launches, a trade-off that could persist until component costs stabilize. Buyers should expect that at any given price point, new devices will be less capable than last year’s models, all thanks to the AI bubble causing a run on memory chips. The bottom line: cheap phones are becoming a luxury, and AI is the unseen cost on every spec sheet.
