AI Influence: How Smartphone Prices May Rise by 30% for Your Next Upgrade
NEW DELHI: Consumers looking to purchase a new smartphone may face higher prices soon. A report from Jefferies indicates that the rising costs of memory components, driven by the booming artificial intelligence sector, could increase the prices of budget smartphones by approximately 30%. This surge in costs may lead buyers to delay upgrades or opt for second-hand devices.
AI’s Appetite for Memory is Driving Up Costs
The demand for memory components from AI companies is straining global supplies. By calendar year 2027, the AI sector is projected to account for about 60% of memory demand. These companies are planning capital expenditures of around $1.5 trillion, which could keep memory prices elevated for several quarters. Jefferies reports that memory prices are expected to peak by mid-2027, but manufacturers are already facing significant cost increases. The cost per unit of memory is estimated to have surged nearly threefold, from $20 in 2025 to between $60 and $65 now.
Budget Smartphones Could Take the Biggest Hit
The impact of rising memory costs will not be uniform across all smartphone segments. For Android devices priced below $200, memory constitutes around 60% of the total bill of materials, making them particularly susceptible to price hikes. Manufacturers may have no choice but to pass on these increased costs to consumers. Jefferies warns that a price increase of approximately 30% for low-end phones could lead to deferred purchases or a shift toward second-hand options. This situation may force manufacturers to reconsider their affordable offerings, potentially reducing the number of lower-priced models available.
Affordable Phones Lose Market Share
The escalating costs of components are likely to affect the overall smartphone market. Jefferies forecasts a 15% annual decline in global smartphone shipments, projecting 1,067 million units in 2026 and 911 million units in 2027. While shipment forecasts for these years have been slightly adjusted upward by 5% and 3%, respectively, the overall outlook remains bleak. The affordable segment is expected to suffer the most, with its market share predicted to drop from 42% in 2025 to 24% in 2026. In contrast, the share of smartphones priced above $600 is expected to rise from 29% to 38% during the same period.
Older Chips Could Replace the Latest Processors
In addition to memory issues, semiconductor shortages are creating significant supply-chain challenges for smartphone manufacturers. To manage costs, companies are considering using chips that are one to two years old instead of the latest processors. This strategy may have long-term implications for the industry. Even if smartphone demand rebounds quickly after 2028, manufacturers could struggle to restore shipment levels if they have reduced production capacity during the current downturn.
