AI's Growing Hunger for Memory Chips Could Price Millions Out of the Global Smartphone Market

Rising AI-driven memory costs could push budget smartphone prices up by 30%, forcing consumers to delay purchases and threatening sales for mobile traders and retailers. Jefferies forecasts a sharp decline in global smartphone shipments through 2027, raising concerns over digital affordability, supply-chain pressures and challenges for policymakers seeking to expand digital inclusion.

Rising memory chip prices, driven by the rapid expansion of artificial intelligence (AI), could make affordable smartphones significantly more expensive, threatening consumer demand, disrupting mobile phone businesses and creating new challenges for policymakers. According to a report by global financial services firm Jefferies, prices of low-end smartphones could increase by approximately 30%, potentially forcing millions of price-sensitive consumers to delay purchases or switch to second-hand devices. The report projects global smartphone shipments will decline to 1.067 billion units in 2026 and 911 million units in 2027, highlighting growing pressure on the consumer electronics industry.

The findings reveal an emerging conflict between the semiconductor needs of AI infrastructure and the affordability of everyday digital devices. As technology companies invest heavily in AI data centres, smartphone manufacturers face rising component costs, tighter supply conditions and difficult decisions over product pricing. The consequences could extend beyond manufacturers to retailers, consumers and governments working to expand digital access.

AI Boom Pushes Smartphone Manufacturing Costs to New Heights

Jefferies estimates that memory costs per smartphone have increased nearly threefold, from approximately $20 in 2025 to between $60 and $65 at the time of the report. This additional expense of $40–$45 per device represents a significant burden for manufacturers producing budget smartphones.

The pressure is particularly severe for Android smartphones priced below $200, where memory could account for around 60% of the total bill of materials, according to the report. Manufacturers operating in this segment have limited flexibility to absorb higher costs without reducing profits or increasing retail prices.

Jefferies projects that AI could account for approximately 60% of memory demand in 2027, while planned capital expenditure by AI industry participants could reach around $1.5 trillion during the same year. These estimates suggest that strong AI-related demand could keep memory prices elevated for several quarters.

However, AI infrastructure and smartphones use different types of memory, meaning the impact depends on production capacity, supply allocation and market conditions. The report expects memory prices to peak around mid-2027, although the timing remains uncertain.

Budget Smartphone Buyers Face a Growing Affordability Crisis

For consumers, the biggest concern is the possibility of sharp price increases in entry-level smartphones. A 30% increase would push the price of a $150 handset to $195, while a $200 device would cost $260.

Such increases could be especially damaging in developing economies, where affordable smartphones provide access to digital payments, online education, employment opportunities and government services.

Jefferies expects the affordable smartphone segment's share of global shipments to decline from 42% in 2025 to 24% in 2026. Meanwhile, smartphones priced above $600 could see their market share increase from 29% to 38%.

This shift suggests that lower-income consumers may face fewer affordable choices, while premium smartphones could account for a larger proportion of the market. However, a higher premium-market share does not necessarily mean that sales of expensive smartphones are increasing.

Consumers may respond by keeping their existing devices longer, buying refurbished smartphones or choosing models with older processors and fewer features.

Although longer device lifespans could reduce electronic waste, ageing smartphones may also create problems involving battery performance, software updates and security protection.

Mobile Traders and Retailers Brace for Falling Sales

Rising smartphone prices could create serious challenges for mobile phone traders, distributors and retailers, particularly those dependent on high-volume sales of affordable Android devices.

As consumers postpone purchases, retailers may experience slower inventory turnover, declining sales and greater pressure on working capital. Smaller businesses could be particularly vulnerable if manufacturers reduce the number of budget smartphone models or scale back distribution networks.

Jefferies forecasts global smartphone shipments will decline to 1.067 billion units in 2026 and 911 million units in 2027. Although the brokerage has slightly raised its earlier forecasts, the overall outlook remains weak.

Manufacturers are also reportedly considering using processors introduced one or two years earlier instead of the latest chips to control production costs.

For traders, these changes could require new business strategies. Retailers may increasingly focus on refurbished smartphones, repair services, battery replacements and trade-in programmes to attract price-sensitive customers.

However, expanding second-hand markets could also raise concerns about device quality, warranty coverage and consumer protection.

Policymakers Face Tough Choices as Digital Access Becomes Costlier

The impact of rising smartphone prices could extend beyond the electronics market, creating challenges for governments seeking to expand digital inclusion and improve access to technology.

Affordable smartphones are essential tools for financial transactions, education, communication and participation in the digital economy. Higher prices could make these services harder to access for lower-income households, particularly in emerging markets.

Policymakers may need to examine measures that support affordable device availability, encourage competition and strengthen consumer protection in refurbished smartphone markets.

Improving repair services, promoting longer software support and encouraging responsible electronic waste management could also help consumers extend device lifespans safely.

For investors and manufacturers, the central challenge will be balancing AI-related semiconductor demand with the continued need for affordable consumer electronics.

Jefferies warns that production capacity reductions during the slowdown could make it difficult for manufacturers to restore shipments quickly, even if demand recovers from 2028.

The key developments to monitor include memory prices, semiconductor production, smartphone affordability and changes in consumer purchasing behaviour.

While the exact scale of the projected downturn remains uncertain, the broader concern is clear: sustained increases in memory costs could make smartphones less affordable, weaken retail businesses and complicate government efforts to expand digital participation.

For consumers, traders and policymakers, the challenge will be ensuring that rapid investment in artificial intelligence does not come at the expense of access to essential digital technology.