The GSMA is warning that surging memory component costs, fueled by global AI infrastructure demand, are making smartphones less affordable. In India, the industry projects a 12% to 15% market contraction in 2026 as entry-level options disappear. To address this, the industry is calling for urgent policy changes, such as reducing GST on mobile handsets to revive demand and maintain digital inclusion.
The global telecommunications and hardware sector is grappling with a supply chain squeeze as the boom in artificial intelligence infrastructure consumes a massive share of memory chip production. The GSMA, which represents mobile operators worldwide, has highlighted that the cost of memory components like DRAM and NAND has risen dramatically, now accounting for approximately 45% of total handset build costs, up significantly from 15% to 20% in previous periods. This shift is forcing manufacturers to prioritize high-margin premium devices, effectively pushing affordable, entry-level smartphones out of the market.
India, a critical market for volume-driven mobile sales, is feeling the impact acutely. The industry expects a 12% to 15% contraction in the Indian smartphone market for 2026, marking a significant downturn. Because price-sensitive consumers in emerging economies often rely on budget devices, the rising cost of components creates a barrier to digital adoption. As new phones become more expensive, many consumers are opting to hold onto their older devices for longer periods or switching to the secondary market, which slows the replacement cycle for major manufacturers.
In response to these challenges, the India Cellular and Electronics Association (ICEA) has formally requested that the government intervene to stabilize the market. A key proposal involves reducing the Goods and Services Tax (GST) on mobile handsets from the current 18% to 5%. Industry advocates argue that such tax relief is necessary to keep entry-level smartphones within reach for the average consumer, preventing a potential decline in mobile internet users.
Beyond tax adjustments, the industry is also exploring structured financing models to help consumers pay for devices over time. However, this relies on government-backed underwriting to manage the credit risk for lower-income buyers. The current situation highlights a widening digital divide, where the rapid advancement of AI-capable technology globally is inadvertently restricting hardware accessibility in price-sensitive regions.
Investors are monitoring this situation closely as it impacts the growth prospects of both mobile manufacturers and the broader retail ecosystem. The ability of companies to manage these component costs without severely damaging their profit margins will be a key performance factor in the coming quarters. Furthermore, the market will look for any signal from regulators regarding potential tax reforms, as such changes would be a significant driver for demand recovery in the budget and mid-range segments.