Memory Shortage Drives Up Smartphone Costs as Chinese Brands Leverage AI Phones to Counter Weakening Demand
N.R. Finch
Global smartphone shipments are set to fall 13.9% in 2026 to 1.08 billion units — the worst compression since 2013 — as a memory-chip shortage pushes average selling prices to roughly $550; Chinese brands are positioning AI phones as their core counter-strategy, but consumer buy-in remains unproven.
Why are shipments falling to the worst level since 2013?
Counterpoint Research estimates 2026 global smartphone shipments at 1.08 billion units, down 13.9% year-on-year.
The main driver is a memory-chip shortage — memory (the chip that temporarily stores data in your phone, like a computer's RAM stick) is in tight supply, and component costs are spiking.
This means → demand hasn't disappeared; building a phone just got more expensive, forcing brands to raise prices or shrink their lineups.
Who gets hit hardest by the price increases?
IDC data shows rising bill-of-materials costs have pushed the average smartphone selling price to roughly $550.
Devices priced below $200 are under the most pressure — some brands' margins on entry-level models have fallen close to zero.
Several vendors have hiked entry- and mid-tier prices; others have cut new-model launches or restructured budget sub-brands — realme among them.
In plain terms = cheap phones break first — they either get more expensive or stop being made.
Why don't brands just say "costs went up, so we raised prices"?
A straightforward cost-driven price hike would further suppress upgrade demand — consumers who see "more expensive but nothing new" simply hold onto their current phone.
The AI-phone concept provides a narrative frame: repackaging the price increase as a "generational upgrade" rather than a hardware-cost pass-through.
This means → the commercial function of the "AI phone" label is, first and foremost, to keep consumers willing to upgrade even as prices rise.
How fast is AI-phone penetration actually growing?
Counterpoint projects that generative-AI-capable phones will account for 45% of global shipments in 2026, rising to 52% in 2027.
IDC forecasts 2026 China AI-phone shipments at 147 million units, up 31.6% YoY, capturing 53% of the China market.
Canalys data is even more aggressive: China AI-phone shipments grew 320% YoY in Q1 2026.
This reflects a collective industry bet on the AI label — but high penetration does not prove consumers are actually paying a premium for AI features.
What signals are regulators and policymakers sending?
Days before the World Artificial Intelligence Conference, China's Cyberspace Administration announced that on-device generative-AI services from Apple, Huawei, Xiaomi, OPPO, vivo, Samsung, and Nubia have completed filing — the first centralized registration of smartphone generative-AI services in China.
An NDRC official also told media that AI-phone and AI-PC sales are expected to surpass non-AI products for the first time.
This means → the policy layer is simultaneously regulating and endorsing — filing is both a threshold and an imprimatur.
What choice does the consumer actually face?
In 2026, Chinese consumers' real options: pay a similar price for a spec-reduced device, or pay more for a device whose specs roughly match the previous generation.
The AI-phone concept is nearly three years old (first publicly proposed by Qualcomm CEO Cristiano Amon in 2023), yet consumer enthusiasm has remained limited.
The core question: can AI phones evolve from a one-time hardware sale into a high-margin value-added-services gateway? If not, "AI phone" is just a justification for higher prices.
Put simply = the ultimate validator is consumer upgrade behavior, not vendor keynotes.
Content is for reference only, not financial advice.