Smartphone Prices Rise as Specs Drop Amid AI and Supply Chain Shifts
- Smartphone manufacturers are increasing retail prices while reducing device specifications as a surge in artificial intelligence (AI) development and global supply chain bottlenecks impact production across the industry.
- The trend is driven primarily by a critical shortage of memory chips, which are essential for both smartphones and the AI data centers currently seeing booming demand.
- The shortage centers on dynamic random-access memory (DRAM), a component critical to smartphone functionality and AI data centers.
Smartphone manufacturers are increasing retail prices while reducing device specifications as a surge in artificial intelligence (AI) development and global supply chain bottlenecks impact production across the industry.
The trend is driven primarily by a critical shortage of memory chips, which are essential for both smartphones and the AI data centers currently seeing booming demand. This competition for components is pushing up the cost of production, forcing manufacturers to either raise prices or lower the hardware specifications of new devices.
Memory Chip Shortages and Price Surges
The shortage centers on dynamic random-access memory (DRAM), a component critical to smartphone functionality and AI data centers. According to Counterpoint Research, the average selling price of smartphones is expected to rise 6.9% in 2026, an increase over a previous forecast of 3.6%.
The cost of producing low-end smartphones priced below $200 has already seen a significant impact, with the bill of materials cost increasing by 20% to 30% since the beginning of 2026.
Further analysis from Jefferies indicates a severe price spike in the memory sector. The firm noted a 70% quarter-on-quarter price surge in memory chips, fueled by demand from server-making companies. These prices are projected to rise by an additional 50% in the second quarter of 2026.
AI Impact on the Supply Chain
The shift in memory chip allocation is largely due to the build-out of global data centers. These facilities rely on systems developed by Nvidia, which utilize components from Samsung and SK Hynix, the two largest suppliers of memory chips.
Jefferies reports that following the AI demand surge, servers now account for 60% to 70% of memory chip offtake, compared to 30% previously.
This shift in priority toward AI infrastructure is squeezing the global smartphone market. Counterpoint Research data suggests that memory prices, which rose 40% to 50% in late 2025, could potentially increase the cost of premium devices by more than $150.
Market Projections and Shipment Declines
Industry analysts warn that rising costs and lower specifications may lead to a significant drop in device shipments. Several firms have issued varying forecasts for the 2026 market:
- Jefferies warns of a potential 31% slump in shipments over the coming year.
- Counterpoint Research previously projected a 12% year-on-year decline in global smartphone shipments for 2026, describing it as the
sharpest decline on record
. - A February report from the International Data Corporation expected the smartphone and PC markets to shrink by 13% and 11%, respectively.
- Counterpoint Research also noted that shipments could fall 2.1% in 2026, a revision from a previous outlook of flat-to-positive growth.
Shipments are used as a measure of demand, tracking the number of devices sent to sales channels such as retail stores, rather than final consumer sales.
Industry Response
In response to the chip crunch, some manufacturers are altering their strategic focus. During MWC 2026, Chinese phone giants were reported to be pivoting toward AI integration despite the ongoing semiconductor shortages.
supply chain partners are attempting to build resilience. Reports indicate that Foxconn is implementing a structural shift to mitigate the impact of the memory price surge on the smartphone supply chain.