AI Boom to Spike Mobile Prices by 30%: Jefferies Warning
Rising memory costs driven by AI could spike low-end smartphone prices by 30%, potentially boosting the second-hand device market.
Your next budget smartphone might come with a much heavier price tag. According to a recent report by Jefferies, the explosive growth of the artificial intelligence (AI) industry is driving up memory costs, which could lead to a staggering 30 per cent price hike for low-end mobile devices.
The AI Connection: Why Memory Costs are Soaring
The surge in prices is not a random market fluctuation but a direct result of the AI revolution. AI systems require massive amounts of memory to function, and this demand is absorbing a significant portion of the global supply. The report estimates that by calendar year 2027 (CY27), AI will account for approximately 60 per cent of all memory demand.
Furthermore, AI players are expected to invest around USD 1.5 trillion in capital expenditure by 2027. This massive investment is likely to keep memory prices elevated for several more quarters, with prices expected to reach their peak by mid-CY27.
The Hard Hit: Budget Smartphones
While high-end users might barely notice the shift, the affordable segment is feeling the heat. For Android smartphones priced below USD 200, memory is a critical cost component, making up roughly 60 per cent of the total bill of materials.
The financial impact is stark: the report suggests that memory cost per unit has surged nearly threefold, jumping from an estimated $20 in CY25 to between $60 and $65 currently.
How Consumers and Manufacturers Might React
A 30 per cent price increase in the budget segment could fundamentally change how people buy phones. Jefferies suggests two primary outcomes:
- Delayed Purchases: Consumers may choose to hold onto their current devices longer rather than paying the premium for a new one.
- Shift to Pre-owned: There could be a significant trigger in the second-hand affordable device market as buyers seek value over newness.
Manufacturers are also expected to pivot their strategies. To cope with rising input costs, brands may reduce the number of low-priced variants they offer and downsize their distribution channels to maintain margins.
A Shifting Global Market Share
The report predicts a dramatic shift in the global smartphone landscape. The affordable segment, which is expected to hold a 42 per cent market share in CY25, could plummet to just 24 per cent by CY26.
Conversely, the luxury segment is expected to grow. Smartphones priced above USD 600 could see their market share rise from 29 per cent to 38 per cent during the same period.
Shipment Slumps and Supply Chain Woes
The overall outlook for global smartphone shipments remains weak. Annual shipments are expected to decline by 15 per cent, dropping to 1,067 million units in CY26 and further down to 911 million units in CY27.
Beyond memory, semiconductor shortages remain a major bottleneck. In a bid to control costs, some manufacturers are reportedly opting for chips that are one to two years old instead of utilizing the latest flagship processors.
The report cautions that if manufacturers reduce their production capacity during this current slowdown, the industry may struggle to restore shipment levels even if demand recovers rapidly starting in CY28.