Summary of Key Points
The AI boom has led semiconductor manufacturers to shift more production capacity towards high-profit storage solutions used in AI servers, such as HBM. As a result, the supply of LPDDR memory, which is commonly used in smartphones, has plummeted, causing prices to soar. This has had a direct impact on the smartphone industry: mid-range phones have seen widespread price increases, while the low-end market is at risk of disappearing. Analysts predict that global smartphone shipments will reach their lowest level since 2013 in 2026, with only 1.08 billion units sold, a year-on-year decrease of 13.9%. The current crisis is not due to insufficient demand but rather to cost pressures on the supply side. Conventional price cuts and promotional strategies are ineffective, and the industry is likely to experience consolidation. In the future, competition will focus on supply chain management and ecosystem development.
1. AI Steals the “Memory Market” from Smartphones
Memory manufacturers are like factory owners. LPDDR memory used in smartphones was once the main product, but HBM memory required for AI servers is much more profitable (for example, producing 1G of HBM generates several times more revenue than LPDDR). As a result, manufacturers have shifted their production lines to produce HBM. The consequence is a decrease in the supply of LPDDR for smartphones: Counterpoint predicts that LPDDR4 supply will drop by 40% in the second quarter of 2026, with prices tripling. This is similar to when the milk you buy regularly becomes scarce and more expensive; naturally, smartphone manufacturers face rising costs.
2. Mid-Range Phones See Widespread Price Increases
During this year’s 618 shopping festival and summer upgrade season, mid-range phones priced between 2,000 and 5,000 yuan have all seen price increases (ranging from 300 to 1,000 yuan), with almost all domestic manufacturers adopting this strategy. Their approaches can be divided into two categories:
- Upgrading Configurations to Counteract Price Increases: For instance, the OPPO Reno16 features four main cameras and a large 6700mAh battery; the Huawei nova16 includes a periscope telephoto lens typically found in flagship models, making consumers feel that the price increase is justified.
- Landing on Lower-End Versions to Reduce Perception of Price Increases: Brands like vivo have released the S60 Pro (2,899 yuan) and the Honor 600 with a lower-end version featuring the Snapdragon 7 Gen4, allowing consumers to still purchase models within the 3,000 yuan range. However, cost pressures remain significant—Yu Chengdong of Huawei stated that the cost of their flagship phones has increased by 1,200 to 1,500 yuan, and Honor’s CEO acknowledged this as a problem for the entire industry.
3. The Smartphone Market is Facing a Cooling Down, with Low-End Models Hit Hardest
Analysts predict that global smartphone shipments will drop to 1.08 billion units in 2026, the lowest level since 2013, due to the following reasons:
- The Low-End Market Cannot Survive: Phones priced below $150 already have thin margins, and the increase in memory costs means they are no longer profitable, potentially leading to their disappearance from the market. For example, Transsion (which started with low-end phones in Africa) expects its shipments to decline by 32%, and Xiaomi’s shipments are expected to drop by 28%.
- Consumers Cannot Afford It: Wholesale prices for smartphones have already increased by 14%, and retail prices will continue to rise, while consumer purchasing power has not kept up, leading to a reluctance to upgrade.
- Apple and Samsung Are More Resilient: These companies have stronger supply chains (e.g., Apple can negotiate better memory prices) and brand premiums, making them less affected than domestic manufacturers.
4. This Crisis is Different from Previous Ones; Conventional Methods Are Ineffective
In the past, smartphones failed to sell because “no one wanted to buy them” (e.g., during the 2022-2023 demand slump), but this time it’s because consumers cannot afford them due to the high cost of memory. Counterpoint analysts argue that this is a supply-side issue that cannot be resolved by optimizing distribution channels or adjusting product configurations. The industry will undergo consolidation, with smaller brands possibly disappearing, average phone prices rising, and upgrade cycles lengthening (from once a year to every 2-3 years).
5. In the AI Era, the Smartphone Industry Must Play a “New Game”
AI is not only competing for memory but also reshaping the resource allocation within the entire semiconductor industry. The future competition for smartphone manufacturers will focus on:
- Supply Chain Control: The ability to obtain cheap and stable memory and chips (Apple and Samsung are examples of this).
- Ecosystem Development: Building strong ecosystems, such as Apple’s iOS or Huawei’s HarmonyOS, which make it difficult for users to switch to other brands. These factors are more important than simply packing more features into phones.
In short, the smartphone industry is having to adapt to the new realities of the AI era. The traditional strategy of relying on low prices to drive sales no longer works; companies will need to rely on their core capabilities to survive.