A new report from Jefferies indicates that budget smartphone prices could jump by up to 30% as AI demand consumes global memory supply. With memory costs per unit tripling, entry-level handset makers face significant margin pressure, potentially shifting consumer preference toward premium or refurbished devices.
Smartphone buyers looking for entry-level models may face a significant price increase in the coming months. A recent assessment by Jefferies warns that budget-tier Android devices could see retail price hikes of up to 30%, driven by a severe shortage of memory components caused by the explosive growth of artificial intelligence (AI) infrastructure.
The AI Memory Squeeze
The root of this price pressure lies in the supply chain. Massive global investment in AI data centers has created an intense demand for high-capacity memory chips, which are essential for AI processing. This demand is effectively crowding out the smartphone industry. Memory chips, which form a significant portion of the cost to build a budget-friendly handset, have seen prices triple. According to market data, the memory cost per unit for sub-$200 devices has climbed from approximately $20 in 2025 to over $60 in 2026.
Pressure on Budget Manufacturers
Companies that produce affordable smartphones are particularly vulnerable to this shift. These manufacturers typically operate on thin profit margins and lack the financial flexibility to absorb such a sharp rise in component costs. Analysts note that to protect their bottom lines, firms are likely to pass these extra costs directly to the customer. In markets like India, this could translate to a retail price increase of up to ₹3,000 per device for many budget models.
This creates a difficult trade-off for companies. While raising prices helps maintain profit margins, it risks alienating price-sensitive buyers who make up the bulk of the entry-level market. As a result, many manufacturers are already adjusting their product portfolios, with some brands reducing their focus on the low-end segment to prioritize premium, higher-margin phones.
Changing Consumer Behavior
There is a broader impact on market demand as well. The combination of higher prices and limited feature upgrades is changing how consumers buy phones. Projections suggest a decline in global shipments for entry-level models, as potential buyers may choose to hold onto their existing phones for longer or switch to the refurbished and second-hand market instead of buying a new budget device.
For investors and market participants, the focus is shifting toward how companies navigate these supply chain constraints. Key monitorables over the coming quarters will be the impact on operating margins, inventory levels for entry-level models, and whether companies can successfully maintain their market share despite the necessary price hikes. With memory supply constraints expected to remain elevated until mid-2027, the ability of manufacturers to manage component costs without sacrificing sales volume will be a critical factor for financial performance.