What the memory chip shortage is and how AI created it
The current memory chip shortage is a supply crunch in RAM and storage chips where booming demand from AI data centers and limited factory capacity are driving up component prices, forcing smartphone makers to pay more and pass some of those higher costs on to buyers through noticeable smartphone price increases and trimmed hardware specifications. AI data centers RAM needs have exploded as companies build large inference clusters, and chipmakers are shifting manufacturing capacity toward high-bandwidth memory that commands much higher prices. While server RAM and phone RAM are different products, they share the same production lines, so every wafer redirected to AI leaves fewer chips for mobile devices. IDC reported that DRAM supply growth in 2026 will fall below historical norms as a result, and mobile DRAM prices have risen close to 70% since early 2025.
How AI data centers RAM demand feeds into 2026 phone costs
Memory makers such as Samsung, SK Hynix, and Micron are reallocating capacity because AI customers are willing to pay far more per gigabyte than smartphone brands. High-bandwidth memory for AI servers delivers better margins, so traditional mobile DRAM and NAND flash supply grows slowly, even as devices need more RAM and storage each generation. According to Counterpoint Research, mobile DRAM prices have risen close to 70% since early 2025, while NAND flash prices have nearly doubled in the same period. As a result, memory now accounts for more than 20% of the total cost to build a mid-range phone, up from roughly 10–15% before. Across the market, this component cost inflation has already translated into a smartphone price increase of around 6–25% in most regions, with budget phones under USD 200 (approx. RM920) hit hardest.
Xiaomi’s profits show how rising memory costs hit phone makers
Xiaomi’s latest results offer a clear case study of how the memory chip shortage hits phone makers’ bottom lines. In the first quarter of 2026, the company’s net income fell 57% year-on-year to 4.72 billion yuan, while smartphone revenue dropped 12.5% to 44.3 billion yuan as shipments slid to 33.8 million units. Management linked the decline to higher memory chip prices and weak smartphone demand, with gross margin in the phone business slipping from 12.4% to 10.1%. At the same time, Xiaomi has increased the average selling price of its smartphones by 8.2% year-on-year, reaching a record level as buyers shift toward premium models. The issue is that price hikes cannot fully offset the surge in memory costs and shrinking volumes. Lei Jun stresses that Xiaomi is trying to absorb part of the extra expense through efficiency improvements, but admits that keeping prices steady is becoming harder.
Why buyers are delaying upgrades—and why that may backfire
Higher prices and modest year-on-year improvements in most devices are encouraging many buyers to delay upgrades, but this reaction is feeding a difficult cycle. As consumers hold onto phones longer, shipments fall, which amplifies the impact of component cost inflation on each device sold. Xiaomi’s shipments dropped 19% year-on-year in the first quarter of 2026, the steepest decline among the top five smartphone brands, even as its global average selling price rose 8.2%. Faced with this squeeze, Xiaomi’s CEO Lei Jun has warned that smartphones could become even more expensive over the next two years as memory costs continue to rise. He has advised people who regularly upgrade every year to consider buying sooner, signaling that the current 2026 phone costs may be lower than what buyers will face if AI-driven demand for memory keeps accelerating.
What this means for your next upgrade
For buyers, the memory chip shortage has three practical effects: higher prices, fewer true budget options, and in some cases less RAM or storage than expected at a given price. Budget phones are most exposed because memory can represent up to a third of their total hardware cost, so brands either cut features, reduce production, or risk selling at a loss. In contrast, premium flagships absorb more of the memory increases with their higher margins. Xiaomi’s data shows growing demand for premium phones, with higher-priced models taking a larger share of its shipments and lifting its overall average selling price by 8.2% year-on-year. If AI data centers RAM demand stays strong and memory makers keep favoring high-bandwidth products, buyers should expect continued smartphone price increases and plan upgrades around actual needs instead of waiting for large discounts that may not arrive soon.
