AI Hunger: Budget Smartphone Prices Set to Jump 30%
A Jefferies report warns that AI-driven memory shortages could spike low-end smartphone prices by 30% and slash global shipments.
The rapid ascent of artificial intelligence is creating an unexpected ripple effect for the average consumer. According to a recent report by Jefferies, the surging demand for memory components to power AI infrastructure is expected to trigger a low-end smartphone price surge of approximately 30 per cent.
The AI Memory Crunch
The core of the problem lies in the aggressive expansion of AI data centers and infrastructure. These systems require massive amounts of memory to function, and they are currently consuming the global supply at an unprecedented rate. The report suggests that by calendar year 2027 (CY27), AI will account for a staggering 60 per cent of the total global memory demand.
This shift is backed by massive financial investments, with AI players targeting roughly USD 1.5 trillion in capital expenditure by CY27. Consequently, memory prices are expected to remain elevated for several more quarters, with a potential peak arriving by mid-CY27.
A Heavy Toll on Budget Devices
While high-end flagship phones can often absorb cost increases, the low-end Android segment is uniquely vulnerable. For these budget-friendly devices, memory now makes up roughly 60 per cent of the total bill of materials (BOM). This makes the segment hypersensitive to any fluctuation in the supply chain.
The financial impact is already evident in the production costs. Memory costs per unit have skyrocketed nearly threefold, leaping from an estimated $20 in CY25 to between $60 and $65 currently.
Changing Consumer Habits and Market Shifts
As prices climb, the report predicts a significant shift in how people buy phones. With new budget devices becoming more expensive, many consumers are expected to:
- Delay purchasing new handsets.
- Shift their interest toward the second-hand market.
- Opt for refurbished devices to save costs.
Declining Shipments and Manufacturer Strategies
The broader impact on the industry could be severe. Global smartphone shipments are forecasted to decline by 15 per cent annually in both CY26 and CY27. The numbers are projected to drop to 1,067 million units in CY26 and further down to 911 million units in CY27.
To survive these mounting input costs, manufacturers are expected to pivot their business strategies. This may include:
- Reducing Product Variety: Cutting down the number of lower-priced product variants to streamline production.
- Downsizing Distribution: Shrinking their distribution channels to mitigate financial losses.