Smartphone shipments hit 13-year low as AI drives up memory costs

Global smartphone shipments have collapsed to their lowest level in more than a decade, dropping 11% year-on-year in Q2 as artificial intelligence demand has triggered a severe shortage of memory chips and driven up manufacturing costs across the industry. The crisis is particularly acute in China, where three of the five largest smartphone suppliers reported slumping sales, marking the fifth straight quarterly decline in the region. Entry-level smartphones have borne the brunt of the cost pressure: prices for budget phones have climbed more than 50% this year, according to a report from last month. The root cause is the memory chip market. DRAM and NAND memory prices have soared recently as AI systems consume ever-larger quantities of supply. The impact is dramatic: a 32GB memory kit that retailed for $100 in October is now priced at $350 if it is available in stock at all, according to Tom's Hardware. Because memory often represents half the total manufacturing cost in cheaper phones, these price spikes translate directly into consumer-facing cost increases that have begun to price out budget buyers. The downturn is not universal, however. Apple and Samsung, which have held consumer prices steady despite the rising input costs, saw sales grow slightly in the last quarter. Their ability to maintain pricing suggests that scale, brand strength, and access to memory supply are creating a two-tier market where the largest players are insulated from the broader correction while smaller competitors struggle.

The smartphone market is facing a historic downturn driven by a supply-chain squeeze on memory chips. As AI systems have ramped up their consumption of DRAM and NAND memory globally, the cost to manufacturers of these essential components has spiked dramatically — a 32GB memory kit tripling from $100 to $350 in just months. For budget-conscious buyers, this squeeze is particularly acute because memory represents roughly half the manufacturing cost of entry-level phones, making price increases unavoidable for smaller brands that cannot absorb the shock. China, traditionally a hub for affordable smartphone production, has been hit hardest, with the top suppliers reporting five straight quarters of decline. However, the market split is stark: Apple and Samsung, with their scale and pricing power, have been able to maintain consumer prices and even grow sales, suggesting that competitive advantage increasingly accrues to the largest players. The 11% year-on-year drop in Q2 — the lowest shipment level since 2013 — signals a structural correction in the mass market.