Anyone who doesn't want to spend a lot of money on a new smartphone usually hasn't had to search for long in recent years. Even relatively inexpensive entry-level models offered large displays, solid cameras, and sufficient performance for everyday use. However, the boom surrounding Artificial Intelligence (AI) is likely to significantly slow down the industry in the lower price segment in the near future.
Demand for AI Data Centers Drives Memory Prices Up
Put simply: AI data centers require enormous amounts of computing power, which is why demand for different memory variants - and thus also the price - has recently risen sharply. Market research firm Omdia, which specializes in the tech sector, expects according to a current forecast that in 2026, almost a quarter (22 percent) fewer smartphones in the price segment below $400 will be shipped, while devices above this price threshold would increase by 5.7 percent.
The reason for this lies primarily in the sharply increased prices for memory and flash storage - a "significant burden" in the mid-range to budget price segment. The mentioned $400 threshold cannot be transferred one-to-one to the German market due to exchange rates, taxes, and regional pricing. However, the principle remains the same: here too, it will become more difficult to bring devices with consistent performance to market at a lower price.
Around 60 Percent of Production Costs Are Attributable to Memory
In the first quarter of 2026, accordingly, expenditures for RAM and flash memory alone corresponded to nearly 60 percent of the total manufacturing costs of a device with a retail price under $400 - almost a doubling since the third quarter of 2025. The nearly 60 percent refers to pure material costs. Items such as distribution, software development, transport, taxes, and retailer margins are not included.
Nevertheless, the figure directly illustrates the problem: when memory becomes more expensive, this development affects tightly calculated entry-level devices much more severely than premium smartphones. The reason: with more expensive smartphones, providers can save in several areas without the product immediately becoming unattractive to the target audience. In the lower price segment, such savings are more difficult - and a higher retail price is likely to quickly drive away the "highly price-sensitive" clientele in this area.
Forecast: Less Performance or Higher Prices for Smartphones
Omdia analyst Zaker Li also expects the situation to worsen, as memory prices are likely to continue rising in the coming quarters. Manufacturers would have to significantly increase retail prices to achieve only small profit margins. Alternatively, they could reduce installed memory, save on other components, or remove individual budget models entirely from their catalog.
For consumers, this doesn't necessarily mean that smartphones in the lower price segment will disappear completely. It's more likely that for the same price, you'll get less - or even older - specifications for memory, processor, or camera.
More expensive devices, however, are likely to be less affected. Premium manufacturers can more easily absorb rising component costs because they earn more on the phones. Additionally, buyers in the premium segment are less price-sensitive and would accept higher prices.
Currently, it might therefore be worthwhile to use an existing smartphone longer or look for previous year's models. Refurbished devices could also become more attractive, provided they still receive security updates for a sufficiently long time.
