The Key Takeaway: AI Is Making Phones More Expensive
The current memory chip shortage means global smartphone shipments have fallen to their lowest level in over a decade, while rising DRAM and NAND costs are driving smartphone prices up and forcing manufacturers to prioritize high-margin flagship devices over affordable budget and mid-range phones. This is not a passing glitch; it is a structural shock created by artificial intelligence’s insatiable demand for memory, and it will reshape what kind of phone you can buy—and what you pay for it—for years. If you’re hoping for a cheap, powerful upgrade, you’re going to be disappointed.
Global smartphone shipments fell 11% year over year in the second quarter, the weakest second quarter since 2013, and memory-chip shortages are a central reason. Suppliers are routing DRAM and NAND capacity to AI data centers, where chips earn more profit, leaving phone makers with fewer components and higher bills. The slowdown is hitting budget and mid-tier phones hardest, where there is no room to absorb soaring memory costs. For the average user, this means cheap, powerful phones are on pause; as long as AI keeps hogging memory, manufacturers will focus on pricey models.
Inside the DRAM and NAND Crisis: How AI Starved Smartphones
The smartphone slump began in AI data centers, not in your pocket. Memory makers like Samsung and Micron shifted production toward high-end chips for AI workloads because they earn more money than standard phone parts. This reallocation reduced the supply of DRAM and NAND for smartphones and pushed component prices sharply higher. In cheaper phones, memory can account for up to 60% of the bill of materials, rising to more than 64% for devices under USD 99 (approx. RM460). When the most expensive part of a budget phone explodes in price, the math stops working.
Manufacturers now face three bad options: absorb higher memory costs, raise prices, or strip out features elsewhere. Most are choosing to pass costs on, which is why entry-level phones now cost over 50% more than they did a year ago. According to Counterpoint Research, global smartphone shipments have fallen by 11% in the past quarter, as rising memory costs and supply volatility cut into demand. The DRAM and NAND crisis turns AI’s progress into a consumer problem: phone buyers get fewer options, worse value, and higher prices—all so data centers can run larger models.
Why Budget Phones Are Vanishing While Flagships Survive
The memory chip shortage is brutally unequal. Budget and mid-range phones are taking the hit, while flagship devices are relatively protected. When DRAM and NAND make up most of the cost of a sub-USD 400 (approx. RM1,840) phone, rising prices leave little room to keep margins or performance intact. Brands that built their business on aggressive pricing—Xiaomi, Oppo, Vivo—have recorded some of the steepest shipment declines, as they either raise prices or cut models altogether. Counterpoint expects budget manufacturers to trim low-margin models and rely more heavily on refurbished and previous-generation devices to keep price-sensitive buyers.
Premium phones, by contrast, can absorb higher memory costs more easily because they already sell at higher margins and often hide the real price behind carrier contracts. For the average user, the practical impact is clear: cheap, powerful phones are on pause while the market tilts toward expensive flagships. Entry-level phones now cost over 50% more than last year, pushing many buyers to hold onto older devices or trade down to prior-generation models instead of upgrading. Budget smartphones are quietly disappearing, replaced by refurbished units and older flagships dressed up as “value” options.
Winners and Losers: Apple, Samsung, and Everyone Else
In a shrinking market, the biggest players are winning. While most phone makers saw double-digit shipment declines due to rising memory costs and market volatility, Apple and Samsung moved in the opposite direction. Samsung reclaimed the top spot with 24% market share, and Apple hit a record 20% share on the back of strong demand for premium iPhones. Both brands even managed shipment growth—Samsung up 4%, Apple up 3%—during the worst slump since 2013.
Their advantage is structural. They dominate the premium segment, where higher prices can absorb more expensive memory, and their devices are often sold through carrier contracts that soften upfront sticker shock. Apple reportedly kept prices steady while competitors had to raise theirs, helping it gain share as the iPhone 17 performed strongly. Samsung used its supply chain strength to keep products on shelves despite component turmoil. Smaller brands without that pricing power or supply control are squeezed from both sides: component costs rising, consumers spending less. The memory chip shortage is accelerating consolidation of the smartphone market around a few premium-focused giants.
What This Means for You Until the Memory Shortage Ends
The uncomfortable truth is that this memory shortage is expected to persist into 2027, keeping smartphone prices elevated for several years. Even if demand stabilizes, production costs will stay high, and replacements will remain an expensive decision. For everyday buyers, it means fewer cheap choices and more pressure to stretch the life of current devices. Many are already waiting longer to upgrade or turning to the pre-owned market rather than buying new phones.
If you want value in this memory chip crisis, you need to be deliberate. Refurbished and previous-generation phones are becoming the main escape hatch for budget-conscious buyers, but they require more care: check battery health, confirm a factory reset, look for warranties or return windows, avoid signs of water damage or a locked bootloader, and buy through platforms with buyer protection. For the average user, the practical reality is simple: until AI’s memory demand cools and the DRAM NAND crisis eases, expect smartphone prices rising, fewer budget models, and a long wait before “cheap and powerful” returns.
