(C) EE Times Asia
The era of the "affordable smartphone" is facing an existential threat. According to a grim forecast by International Data Corporation (IDC), global smartphone shipments are projected to plummet to 1.12 billion units this year—a 12.9% year-over-year decline and the lowest volume recorded in a decade. While the industry has weathered supply chain hiccups before, the current crisis is driven by a fundamental structural shift in the semiconductor world: the insatiable appetite of Artificial Intelligence.
The "HBM Displacement" Effect
The primary culprit is not a lack of demand for phones, but a lack of priority for their components. As tech giants scramble to build massive AI data centers, memory giants like SK Hynix, Samsung Electronics, and Micron are pivoting their production lines toward High Bandwidth Memory (HBM) and specialized AI server DRAM.
Because fabrication capacity is finite, the surge in AI-related orders has squeezed the production of "commodity" or general-purpose memory—the LPDDR chips that power most mobile devices. "Investment and production are being cannibalized by AI requirements," IDC noted. This has led to a sharp spike in memory prices, leaving smartphone manufacturers with a difficult choice: raise prices or sacrifice performance.
The Collapse of the Entry-Level Segment
The hardest hit are the manufacturers of low-cost Android devices. Operating on razor-thin margins, these companies cannot absorb the double-digit percentage increases in component costs. For a decade, consumers in emerging markets have enjoyed a "deflationary" trend where hardware became better and cheaper every year. That trend has officially broken.
The geographic impact is stark:
-Middle East & Africa: Expected to shrink by 20.6%.
-Asia-Pacific (excl. Japan): Forecasted to decline by 13.1%.
-China: Projected to drop by 10.5%.
Last year, sub-$150 smartphones accounted for 360 million units globally. In markets like Africa and India, these devices make up 60% and 30% of total sales, respectively. IDC warns that these $150 handsets may soon see price hikes pushing them above $200, or suffer from "spec-downgrading" where manufacturers install older, slower memory to keep costs down.
A Duopoly's Opportunity?
While the budget segment bleeds, the premium market—dominated by Apple and Samsung—may find a silver lining. As smaller, budget-focused players are forced out of the market due to rising costs, the industry giants are expected to consolidate their market share. High-end consumers are generally less sensitive to price fluctuations, and premium brands have more leverage to secure their component supplies.
However, even the giants are not immune to macroeconomic headwinds. IDC highlighted the "Trump Risk"—the potential for a 15% tariff on electronics and components. Such a policy would act as a secondary price shock on top of the already inflated memory costs, creating further uncertainty for the 2026-2027 fiscal years.
The "Used Phone" Pivot
With new devices becoming pricier, the consumer behavior is shifting toward longevity and the secondary market. "The era of the cheap smartphone is over," IDC concluded. Consumers are now holding onto their devices for longer periods or turning toward refurbished and used smartphone markets to bridge the gap.
Industry analysts do not expect the memory supply to normalize until late 2027. Even then, the floor for component pricing has likely shifted permanently upward, making the "10-year low" of 2026 a potential new baseline for a cooling industry.
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