Smartphone makers are preparing for higher production costs next year as shortages in key memory components ripple through the global supply chain, putting pressure on prices and volumes, according to new research from Counterpoint.
Manufacturers at the lower end of the market are already feeling the strain. Counterpoint estimates that the bill of materials for smartphones priced below $200 has climbed between 20% and 30% since the start of the year. Devices in the mid to premium tiers have seen component costs rise by roughly 10% to 15%, squeezing margins across much of the industry.
The price pressure is set to intensify. “Memory prices could rise another 40% through Q2 2026, resulting in BoM costs increasing anywhere between 8% and over 15% above current elevated levels,” Counterpoint said.
Those higher costs are likely to be passed on to consumers. Counterpoint now expects the average selling price of smartphones to increase 6.9% year on year in 2026, nearly double its earlier projection of a 3.6% rise. At the same time, global smartphone shipments could fall 2.1%, reversing a previous outlook that pointed to flat or modest growth.
While shipments are not the same as retail sales, they offer a clear signal of weakening demand as vendors ship fewer devices into stores and distribution channels.
At the heart of the issue is memory. Dynamic random access memory, or DRAM, has become a critical input not only for smartphones but also for artificial intelligence infrastructure. As technology firms race to expand data centres, demand has surged for AI systems powered by Nvidia, which relies heavily on memory components designed by SK Hynix and Samsung, the world’s two largest suppliers in this segment.
That competition for supply has pushed DRAM prices sharply higher this year, creating bottlenecks that now extend well beyond the data centre market. Smartphones depend on the same class of memory, leaving handset makers exposed to the spillover effects of the AI investment boom.
Counterpoint warned that some vendors may respond by cutting costs elsewhere. Possible measures include downgrading camera modules, displays or audio components, as well as reusing older parts to protect profitability. Others are expected to shift marketing efforts toward higher priced models in an attempt to preserve margins.
Not all companies face the same level of risk. “Apple and Samsung are best positioned to weather the next few quarters,” said MS Hwang, research director at Counterpoint. “But it will be tough for others that don’t have as much wiggle room to manage market share versus profit margins.”
That challenge is expected to be most acute among Chinese smartphone manufacturers that compete primarily in the mid to lower price bands, where pricing flexibility is limited and consumers are more sensitive to cost increases.
For the wider industry, the findings underscore how investment decisions in one corner of the technology ecosystem can reshape outcomes elsewhere. The global build out of AI infrastructure has accelerated innovation and capacity in some markets, but it has also redirected scarce components away from consumer electronics.
As 2026 approaches, smartphone makers face a delicate balancing act. They must absorb or pass on rising input costs while navigating softer demand and more price conscious consumers. For business leaders and investors, the message is clear. The AI boom is no longer confined to cloud computing and semiconductors. Its consequences are now reaching into everyday devices and household budgets worldwide.
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