Summary of Key Points
The storage market, which has seen significant growth for two consecutive quarters, is now facing resistance from downstream manufacturers regarding price increases. Further price hikes would result in immediate losses for these manufacturers (a phenomenon commonly referred to as "unrecoverable orders" in the industry). Although the short-term supply-demand imbalance has not yet reversed, the pace of price increases is beginning to slow down. The consumer electronics sector, particularly low-end smartphones, is being hit the hardest, with annual shipments likely to reach a decade-low level. Once the low-cost inventory is depleted, manufacturers will face even greater pressure, and industry consolidation is highly likely. On the other hand, strong demand for servers will help sustain the price increase cycle for a while longer.
1. Downstream Manufacturers Demand a Pause: Further Price Hikes Would Lead to Immediate Losses
The term "unrecoverable orders" originates from Go gaming, where trying to save one's own pieces can result in being captured by the opponent instead. In the storage market, it means that if downstream manufacturers continue to purchase more expensive memory chips, their profits will be eroded, or they might even incur losses as soon as they place orders.
For example, Xiaomi recently revised its smartphone shipment target for 2026 from 90 million to 110 million units, with the additional volume coming mainly from low-end models that were previously heavily affected by storage costs. This is a test of the market: if memory prices do not rise further, these low-end devices can still be sold; however, if they do, production will become unfeasible. Additionally, memory prices in Shenzhen's Huaqiangbei area have slightly eased, indicating that downstream buyers are no longer willing to accept higher prices.
Industry insiders say that consumer electronics manufacturers are strongly opposed to price increases, and even though the increase in quotes from original manufacturers in the third quarter is smaller than in the previous two quarters, downstream parties still do not want to accept further price hikes.
2. Price Increases Slowing Down, but Supply-Demand Imbalance Remains
Despite downstream resistance, memory manufacturers still wish to raise prices. Samsung, for instance, plans to increase the price of DRAM (memory chips) by another 20% in the third quarter, with LPDDR chips used in smartphones and servers likely seeing even larger increases. However, the actual increase is expected to be much lower than planned, with DRAM prices rising by only 13%-18% in the third quarter, compared to 58%-63% in the second quarter.
Why are the price increases slowing down? Due to weak demand from the consumer electronics sector and the already high price levels in the second quarter. Analysts point out that there is no new capacity on the supply side, so the shortage of DRAM will continue into 2027, meaning prices will not fall significantly in the short term; they will just increase more slowly.
3. Consumer Electronics Suffering Heavy Hits: Low-End Smartphones Hit Hardest, with Annual Shipments at a Decade-Low
The rise in storage prices is having a particularly severe impact on consumer electronics, especially low-end smartphones. Data from Counterpoint shows that global smartphone shipments decreased by 3.1% year-on-year in the first quarter of 2026 (ending a nine-quarter streak of growth). In the second quarter, the price of LPDDR4 memory (commonly used in low-end devices) doubled compared to the end of 2025, while supply decreased by 40%.
Analysts predict that global smartphone shipments will decline by 13.9% in 2026 to 1.08 billion units, the lowest level since 2013. The market share for budget phones will continue to shrink; although it is not yet clear when this trend will fully reverse, low-end devices are facing tough times, as storage price increases have eroded their already thin margins.
4. Depleting Inventory Will Make Things Even Worse: Industry Consolidation Is Imminent
Many smartphone manufacturers stocked up in the first half of the year, so current shipment figures do not fully reflect the impact of rising storage prices. According to TrendForce, once these low-cost inventories are exhausted, manufacturers will face even greater difficulties in the second half of the year. Global smartphone shipments are expected to decline by 16% year-on-year in the second half of 2026, and the industry may not recover until the second half of 2027.
Smaller and mid-sized manufacturers are in the most dire situation: they have little bargaining power, cannot obtain cheap memory, and face significant challenges to both their profits and operations. Therefore, industry consolidation is inevitable over the next few years—the number of brands will decrease, smartphone prices will rise overall, and the user replacement cycle will lengthen (from every two years to possibly every three years).
5. Server Demand Provides Support: Price Increases Can Last for a While
Although consumer electronics are struggling, demand for servers is supporting memory price increases. Analyst Wang Yuqi notes that large cloud service providers (such as Alibaba Cloud and Amazon Web Services) have more tolerance for price hikes because servers are essential tools for their operations, whereas smartphone manufacturers see storage costs as a major expense that can affect sales if prices rise too much.
Thus, the low price elasticity of server demand will prolong the current price increase cycle. In other words, memory prices will not fall immediately but will continue to rise for some time, although consumer electronics sectors are no longer able to withstand these increases.
In summary, the storage market is in a phase of negotiation where upstream manufacturers want to raise prices while downstream parties resist. Consumer electronics, especially low-end devices, have reached their limit, but server demand is providing support. Therefore, price increases will not stop in the short term, though the pace will slow down. Industry consolidation and adjustments within the consumer electronics sector are likely to be the inevitable outcomes of these developments.