Low-Cost Phones Disappear as Memory Prices Rise: Will Only Premium Smartphones Survive?

Competition to secure memory for AI data centers is driving up memory prices, reshaping the pricing landscape of the smartphone market. The impact of the memory shortage is expected to become more pronounced in the second half of the year, and costs for DRAM and NAND flash have reportedly risen by more than 300% from a year earlier.

This shift is directly affecting smartphone manufacturing costs and pricing structures. In particular, the number of low-cost smartphones priced at under USD 100, where the burden of memory costs relative to the selling price has become more pronounced, is declining, and manufacturers are understood to be facing a lack of room to absorb higher costs. IDC said manufacturers have limits to how much of the rising cost burden they can absorb.

As a result, manufacturers are responding by raising prices on lower-end models, cutting memory capacity, reducing product launches, and scaling back production. As their ability to absorb higher costs continues to fall short, the market is seeing the cheapest product segment pushed out.

Ultimately, the earliest contraction is taking place in the cheapest product segment, accelerating a shift in the smartphone market toward premium offerings. IDC said on the 27th that global smartphone shipments this year are expected to fall 16.7% from a year earlier, while second-half shipments are forecast to decline 27.2% year over year.

Memory used in smartphones is divided into mobile DRAM and NAND flash. Mobile DRAM is used to run applications and the operating system, while NAND flash stores photos, videos, and apps. Recently, memory makers have been prioritizing production capacity for AI server HBM and other high-value server products. As a result, supply of consumer-grade general-purpose memory is being pushed further down the priority list.

The fallout is hitting smartphone makers, with differences emerging by price segment. Premium devices can absorb part of the cost increase thanks to their high selling prices and profit margins. By contrast, low-cost phones have thin margins and low prices, so even a few dollars of added component cost can undermine their business viability.

According to IDC data, shipments of smartphones priced below USD 100 in the global market totaled 173 million units last year. But shipments of sub-USD 100 models in the second quarter of this year plunged by about 60% from a year earlier. The rapid weakening of profitability in low-end models is feeding into lower shipments.

Accordingly, manufacturers are choosing to reduce the number of low-end models rather than keep existing prices and absorb losses. At the same time, they are responding by steering consumer demand toward products one tier higher in price.

A survey by Counterpoint Research confirms the same trend: the share and sales volume of ultra-low-cost smartphones are both falling, indicating that the contraction in the low-end segment is proceeding faster than the overall market. The share of smartphones priced at less than USD 99 fell from 18% to 19% in early 2025 to 12% in March this year. Monthly sales of smartphones priced at less than USD 99 also dropped from 18 million to 19 million units to under 12 million units, down about 40% from the same month a year earlier. Over the same period, low-cost smartphone declines were much steeper than those of the overall smartphone market.

In response, manufacturers are moving to downgrade specifications in order to maintain prices. Expanding memory capacity had been a key feature of smartphone generational upgrades, but according to TrendForce forecasts, base DRAM capacity in low-cost smartphones may return to around 4 GB this year. In addition, some new models have been released with the same memory capacity as their predecessors, while others have launched with lower specifications than the previous generation.

Meanwhile, the global average smartphone price for this year was put at USD 581. The global average smartphone price rose 27.6% from a year earlier.

As low-end smartphones exit the market and overall smartphone shipments decline, the upward trend in average smartphone prices is continuing. IDC forecast the global smartphone average selling price, or ASP, at USD 581, about KRW 800,000, for this year. That means ASP is expected to rise 27.6% from a year earlier, up USD 31 from the previous forecast of USD 550, about KRW 760,000.

However, the rise in average selling prices does not mean that all smartphone prices are increasing by 27.6% across the board. The increase in ASP reflects not only higher ex-factory prices for individual products but also a shrinking share of low-end phones and a larger share of high-priced products. In other words, it also reflects a change in product mix.

This kind of market polarization is also visible in shipment volumes by operating system. IDC forecasts that Android smartphone shipments this year will fall 24.3%, while iPhone shipments will decline by only 1.3%. The drop in iPhone shipments is smaller than that of Android, and as a result, iPhone's share of global smartphone shipments is expected to hit a record high of 23.6%.

Rising memory prices and supply shortages are not exempting iPhone users either, so Apple cannot avoid higher component costs and tighter supply. Still, Apple enjoys higher margins than midrange and low-end Android phones and has a customer base with stronger purchasing power, giving it more room to absorb the shock. In addition, the spread of long-term interest-free installment plans and trade-in programs helps spread out the burden of purchase and strengthens the premium market's defenses.

Global smartphone shipments in the second quarter of this year fell 11% from a year earlier, marking the weakest second-quarter performance since 2013. Against this backdrop, Samsung Electronics returned to the No. 1 spot globally with a 24% share. Apple posted a 3% increase in shipments and, for the first time on a second-quarter basis, reached a 20% share.

By contrast, Xiaomi, Oppo, and Vivo all posted double-digit declines in shipments. These companies rely heavily on sales in China and emerging markets and have a high proportion of midrange and low-end products, so they were hit relatively hard by rising memory prices. Consumers bought older models instead of new products with higher prices and delayed replacement cycles, and this change in consumer behavior translated into lower shipments.

Samsung Electronics is being affected by weakness in its low-end product lineup. However, sales of the Galaxy S26 series and Ultra models are offsetting the decline in midrange and low-end products.

Large-scale component procurement is also cited as a relative buffer. A structure in which memory, AP, and displays can be supplied from within the group is another factor that somewhat eases the impact.

Meanwhile, Samsung Electronics is expected to unveil the Galaxy S26 FE at the 'Samsung Galaxy Event' on the 27th. FE refers to a product lineup that keeps key flagship features while adjusting some specifications and lowering the price.

The key question is whether it can maintain a reasonable price amid rising memory costs. Amid weakness in the low-end segment, whether it can secure price competitiveness is emerging as a point of interest.

However, a larger share of premium phones does not guarantee sustained growth in the premium market. That is because in a shrinking overall market, low-end phones are declining faster, and the sharp drop in low-end phones is acting as a relative boost to the premium segment's share. If smartphone prices continue to rise, even high-end device buyers may extend their replacement cycles.

From a manufacturer’s perspective, low-cost smartphones are an important pillar even if the immediate profit margins on entry-level products are low. Entry-level devices help attract new customers in emerging markets and serve as an entry point into a company's operating system and services ecosystem. Consumers who first engage with low-end products may later move up to midrange and premium devices, so a smaller low-end smartphone market could weaken that growth path. The retreat of low-cost smartphones is a long-term burden for manufacturers.

Meanwhile, the memory supply crunch is expected to be difficult to resolve in the short term. TrendForce forecast that the NAND flash market will see a supply shortage of 4% to 5% this year and put the easing of supply constraints at the second half of next year. TrendForce also forecast that global smartphone production this year will fall 15% to 20% from a year earlier. With the memory shortage likely to continue for some time, declining smartphone production and supply constraints are compounding each other.

In this trend, changes in the smartphone market are not limited to temporary price increases at shipment. As investment in memory and production shifts toward AI infrastructure, both the price bands and product mix of consumer devices are changing. Smartphone consumers are beginning to bear the cost of expanded AI investment through higher prices and fewer choices.

The survival of a premium-phone-centered market may translate into higher profitability for manufacturers, but for consumers it means a higher entry price for smartphones.

Related to this trend, an industry source said manufacturers are unlikely to immediately restore their reduced entry-level lineup even after memory prices stabilize. Another industry source said the supply crunch could become a trigger not just for simple price increases, but for a higher floor price for smartphones available to consumers.

Source: IT DAILY · Lee Jae-young
Original: https://www.itdaily.kr/news/articleView.html?idxno=241230

References

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