Smartphone Shipments Hit 10-Year Low Amid Chip Shortage

Global smartphone shipments experienced an 11 percent decline in the last quarter, marking the lowest second-quarter volume since 2013. This significant drop is attributed by analysts to the escalating prices of DRAM and NAND memory chips. The increased demand for these components in the burgeoning AI computing sector has led manufacturers to prioritize AI infrastructure, resulting in a reduced allocation for consumer electronics such as smartphones and personal computers.

The rising cost of memory chips is disproportionately affecting budget smartphones. A report from market research firm Omdia indicates that for phones priced at $500 or less, memory costs can now constitute up to 50 percent of the total manufacturing expenses. This has led to more substantial price increases for these entry-level devices compared to flagship models. While memory costs have also risen for high-end devices, they now represent just over a quarter of the manufacturing cost, still allowing for greater profit margins at the premium end of the market.

This trend suggests a strategic shift by manufacturers, prioritizing higher-margin flagship devices and AI-related hardware over the production of more affordable smartphones. The plateauing of smartphone shipments in recent years, ending a period of consistent double-digit growth, has already forced consolidation within the industry, with fewer manufacturers remaining. The current memory shortage and subsequent price hikes are further exacerbating challenges for the remaining players, particularly in the budget segment.