Summary of the Key Points
This report exposes the myth that many consumers have held onto for years: the belief that prices of digital products would drop after a certain period. Over the past year, there has been an abnormal surge in prices across all categories of mobile phones, computers, and tablets, ranging from cost-effective models priced at a few thousand yuan to high-end flagship models costing tens of thousands of yuan, with some increases exceeding 20%. This completely breaks the pattern of digital products gradually decreasing in price shortly after their release, followed by significant discounts during promotional events. The root cause of the price hikes is not a collective increase in prices by manufacturers, but rather the explosion of the AI industry, which has taken up a large portion of the production capacity for memory chips. The reversal of supply and demand has not only significantly increased the cost for ordinary consumers to purchase devices but has also rewritten the business logic of the entire consumer electronics industry. The strategy of relying on low prices to drive sales is no longer viable, and the entire industry is being forced to move towards higher-priced products.
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Popular Explanation of the Key Points
1. The “Wait-and-See” Strategy Has Failed This Year; Digital Products Are Getting More Expensive
In the past, the common approach was to wait for two months after a new product was released for the price to drop, or to wait for discounts during events like 618 or Double Eleven to buy at the best deal. However, this strategy has completely failed this year. The price increase has already occurred three times since the end of last year: in March, prices of mid-to-low-end models rose significantly; from April to August, some models saw multiple price hikes; and in September, the latest round of price increases affected all price ranges, with even the Huawei Mate series, which rarely saw price changes, seeing a rise of up to 1000 yuan. The impact on young people is particularly significant; recent graduates are unable to afford the latest devices and are resorting to using their parents’ old equipment. Those who planned to buy a new phone in the 2000-yuan range have realized that it might be more cost-effective to buy a basic iPhone for a few hundred more yuan and use it for four to five years. Some even find that their old phones and computers, which they previously dismissed, can still be used for another two years.
2. You’ve Already Paid an “AI Tax” Without Even Using AI
The current price increases are different from previous reasons such as rising raw material costs or chip shortages. The essence is that the AI industry is competing with ordinary consumers for resources. The memory chips used in phones and computers to store data and run programs are produced on the same production lines as those used in AI servers. It’s like if a bakery used to produce affordable buns for customers and custom meals for businesses, but now a wealthy company has offered to pay three times the price for 70% of the production capacity and signed a three-year contract. Naturally, the bakery owner will prioritize the custom orders, resulting in fewer and more expensive buns for customers. Major memory manufacturers like Samsung and SK Hynix have shifted 22% of their production capacity to high-bandwidth memory for AI use, leaving less capacity for phones and computers, with inventory levels dropping to less than 10 days. This shortage is expected to continue until 2027. Since AI companies are willing to pay high prices, manufacturers cannot compete with them, and the resulting cost increases are passed on to consumers. Even if your current phone or computer doesn’t have any AI features, you are still contributing to the expansion of the AI industry—this is what people jokingly call the “AI tax.”
3. It’s Not Consumers Who Can’t Afford the Price Hikes; It’s Small and Medium-Sized Manufacturers
Many think that manufacturers are making huge profits from the price increases, but in reality, most players in the industry are struggling. Small manufacturers, especially those focusing on cost-effectiveness, are suffering the most. Realme’s low-end models are losing money with each sale, and after eight years, they had to end their independent operations and merge with OPPO. Meizu has even announced a pause on developing new hardware for the domestic market. Even leading manufacturers like Xiaomi have seen a significant drop in profit margins, with their mobile phone gross margin falling from 11.5% to 8.5% in the second quarter. The cost of memory chips alone for a standard 8+128G phone now accounts for more than 1500 yuan out of the retail price, leaving little profit for the manufacturer. Memory costs now account for over 65% of the total cost of low-end phones priced below a thousand yuan. As a result, global shipments of ultra-low-cost phones (under $100) have decreased by 60%. Many manufacturers are either cutting out low-end products or reducing their specifications to save costs, such as removing 5G capabilities or downgrading memory from 256G to 128G.
4. The Era of Cost-Effectiveness Is Over
The previous competitive strategy in the mobile phone industry was to focus on high specifications and large shipments; the company that could offer the most features at a low price would gain market share. This no longer works. Selling low-end phones at a loss only leads to faster decline in profits. Manufacturers’ primary goal is now to maintain profitability. All companies are moving towards higher-priced products. High-end models, such as Huawei’s and Xiaomi’s foldable phones, are becoming more popular, and mid-range phones are being equipped with various AI features to justify higher prices. PC manufacturers are also shifting their resources towards corporate customers, as individual consumers are less tolerant of price increases, while corporate orders are more stable and more profitable. A clear trend is that cheaper digital products will become increasingly rare, and the practice of packing lots of features into low-end models will stop.
5. Practical Advice for Consumers
Based on industry forecasts, the shortage of memory chips will continue until at least 2027, and significant price reductions are unlikely in the coming years. There’s no need to wait for discounts to keep using outdated, lagging devices:
- For essential needs (if your device is too old to use for work or is broken), don’t wait for promotions; buy when you find a suitable option, as prices are likely to rise over time.
- For non-essential items, reduce your shopping list; you don’t need to buy the latest and most expensive models. Using old devices for one or two years is completely acceptable.
- When buying a new phone, choose models with more memory; memory is becoming more valuable. A 256G phone costs a few hundred more yuan but offers better performance and longer battery life, making it more cost-effective.
- If your budget is limited, consider buying a reliable previous-generation flagship model or a used device from a reputable platform, as these options offer better value than the newly priced mid-range models.