AI boom making smartphones costlier as memory crunch squeezes India’s budget segment

The artificial intelligence (AI) boom is driving up smartphone prices globally as a memory crunch, fuelled by demand from AI infrastructure, raises component costs and forces handset makers to choose between protecting margins and passing higher costs on to consumers.

India is already feeling the pressure. The average selling price (ASP) of a smartphone touched a record $315 in Q2 2026, up 14.4% year-on-year, even as shipments fell 11.1% to 33.2 million units. H1 shipments declined 7.9% to 64.2 million units—the lowest first-half volume in five years—while market value grew 3.6%, according to IDC.

The divergence is clear: fewer phones are being sold, but at higher prices.

AI tightens the memory market

The pressure is visible across the semiconductor industry. SK Hynix reported a 30% quarter-on-quarter rise in Dynamic Random Access Memory (DRAM) ASP in Q2, while NAND ASP increased in the mid-50% range, reflecting strong memory pricing as AI infrastructure demand rises.

Samsung Electronics also reported record quarterly revenue for its memory business, while its mobile business faced higher component costs. Qualcomm has announced plans to raise processor prices from September 1, adding to the cost pressure on handset makers.

India’s cheapest phones take the biggest hit

The impact is sharpest at the bottom end. IDC data shows shipments of smartphones priced below $100 plunged 74.3%, reducing the segment’s market share from 15.6% to 4.5%. Online shipments fell 19.8%, compared with a 3.6% decline offline, as discounts became harder to sustain.

“Brands have largely passed these costs on rather than absorb them,” said Upasana Joshi, senior research manager, IDC India SEA.

Joshi said premium players such as Apple and Samsung were better placed to absorb higher costs without sacrificing volumes or margins, while Chinese brands with greater exposure to low-end and mass-market segments faced tougher conditions.

Counterpoint Research estimates smartphone ASPs in India will rise about 17% in 2026, even as shipments decline 13%. It says memory prices have risen more than fourfold, with higher chipset costs adding to the pressure.

“Brands initially absorbed part of the increase to protect volumes, but continued cost pressure is leading to higher consumer prices,” said Prachir Singh, senior analyst at Counterpoint Research.

Higher prices could extend upgrade cycles

The pressure may persist into 2027. Joshi expects smartphone prices to continue rising through the remainder of 2026 and into next year if memory and chipset costs remain elevated, although the pace could moderate.

She expects H2 2026 shipments to be weaker, with annual volumes declining by more than 15% from the 152 million units shipped in 2025. However, she maintained, “Demand hasn’t disappeared, buyers are simply waiting longer to upgrade,”

Counterpoint estimates smartphone replacement cycles in India have already stretched to 48–49 months, with consumers increasingly likely to delay purchases, seek discounts or consider refurbished devices.

For handset makers, passing on higher component costs can protect margins but risks weakening demand further, particularly in the mass market. Absorbing the costs, meanwhile, could squeeze profitability as volumes remain under pressure.

As a result, India’s smartphone market is becoming more valuable even as fewer consumers buy new phones.