TECH

Memory crisis drags affordable smartphone segment to steepest decline in years

The global smartphone market is undergoing a profound transformation driven by the sharp rise in DRAM and NAND prices; these costs have climbed steadily over recent quarters and are expected to keep rising in the months ahead. This surge is significantly altering device costs, primarily impacting the mid-range and low-end segments, where memory has come to represent a disproportionate share of the total cost.

According to Omdia, smartphones priced under US$ 400 saw a year-over-year decline of more than 22%, a drop directly linked to the growing weight of memory costs in production.

The shift is evident when comparing costs between the third quarter of 2025 and the first quarter of 2026. In the sub-$400 segment, memory's share of the total cost nearly doubled, while for models above that price point, it increased by more than 100%.

By the first quarter of 2026, memory accounted for nearly 60% of manufacturing costs for smartphones under US$ 400, and exceeded 64% for entry-level models priced under US$ 99.

Omdia reports that this cost pressure is so intense that manufacturers are attempting to offset it by cutting costs on other components—such as displays, sensors, and RF modules—where supply remains plentiful. However, low-cost devices already operate on extremely tight margins, making it nearly impossible to absorb the impact solely through further cuts, the firm adds.

The research firm warns that the situation is set to worsen, with memory prices expected to rise further in the coming quarters. To maintain minimal margins, brands such as Transsion, Oppo, vivo, Honor, and Xiaomi have been forced to raise retail prices, despite knowing that consumers of entry-level devices are highly price-sensitive. Consequently, demand has fallen rapidly, rendering many low-cost models barely profitable and prompting manufacturers to gradually reduce inventory in this segment throughout the year. Amidst this contraction, Omdia forecasts a 12% decline in the global smartphone market in 2026, driven primarily by a sharp drop in models priced below $400, which are expected to fall by more than 22% this year. In contrast, smartphones priced above $400 are projected to grow by 5.7%, supported by less price-sensitive consumers and greater flexibility among manufacturers to reduce costs on premium components.

This market shift reflects three key trends. The first is the strategic move by manufacturers toward higher price tiers, followed by steadily rising retail prices that push more models into the above-$400 segment. Finally, there is greater demand stability among high-end consumers.

For premium models, memory accounts for a smaller share of the total cost, allowing manufacturers to adjust other components to alleviate pressure. Strategies identified by Omdia include reverting to LTPS OLED panels for some high-end models that had previously switched to LTPO, thereby cutting costs by $3 to $5 per unit, and adopting more flexible camera configurations—such as smaller sensors or fewer modules. Another approach involves using previous-generation SoC platforms, which can reduce costs by 30% to 40% for models priced above $600.

As memory costs continue to reshape smartphone economics, manufacturers face an increasingly delicate balancing act between affordability, profitability, and competitiveness. Omdia concludes that this pressure will accelerate market polarization, characterized by a continued contraction in entry-level segments and a growing focus on mid-range and high-end models, where there is more room to absorb costs and adjust specifications without dampening demand.

mundophone