Budget smartphones are quietly losing their options. Price hikes and spec freezes have been piling up in the sub-$400 segment that has long supported emerging markets, and many readers may already sense that "there are fewer models to choose from than before." Behind this lies a sharp spike in memory prices, driven by demand from AI data centers.
A forecast from Omdia, published in a blog post on July 7, 2026, translates this feeling into concrete numbers. Models priced at $400 or below are expected to drop more than 22% year-over-year in 2026, while models priced above $400 will actually grow 5.7%. Even as the overall market shrinks by 12%, a stark bifurcation is unfolding across price tiers.
The Gap: -22% Below $400, +5.7% Above $400
It's rare to see such a divergence in outlook within a single market that's shrinking by 12% overall. The weight of this decline is reinforced by the fact that multiple independent research firms are pointing in the same direction. In its February 26, 2026 announcement, IDC projected global shipments at 1.12 billion units, down 12.9% year-over-year—what it called "the steepest decline since records began." IDC also expects average selling price (ASP) to climb 14% year-over-year to $523.
IDC's Francisco Jeronimo described the situation not as a temporary squeeze but as "a tsunami-like shock." Counterpoint itself has repeatedly revised its forecasts downward, growing more pessimistic over time: from a 2.1% decline as of December 2025 (as reported by GSMArena), to a 12.4% decline in February 2026, and further to a 13.9% decline (1.08 billion units) by May 2026. While Omdia, IDC, and Counterpoint differ in timing and methodology and their figures cannot simply be added together, they all agree on one point: this is an unprecedented magnitude of decline.
The significance of the $400 threshold shows up clearly in the breakdown of component costs. According to Omdia's analysis, as of Q1 2026 (January–March), memory accounts for roughly 60% of the bill of materials (BOM) for devices priced at $400 or below, and more than 64% for devices priced at $99 or below. This ratio has nearly doubled over just two quarters since Q3 2025 (July–September), and even devices priced above $400 saw memory's BOM share rise by more than 100%. When memory's share of production cost spikes this dramatically, manufacturers are left with only two choices: pass the cost on to consumers, or cut performance to absorb it.
How AI Is Siphoning Memory Away from Smartphones
Data centers that power generative AI training and inference require massive volumes of HBM (High Bandwidth Memory) and high-performance server-grade DRAM. Since semiconductor manufacturing lines have finite capacity, companies like Samsung, SK hynix, and Micron have been shifting their wafer allocation toward HBM and server-oriented products, which command higher unit prices and are easier to secure through long-term contracts. As a result, the production capacity available for general-purpose DRAM and NAND (flash memory that retains data even without power) destined for smartphones has effectively shrunk, tightening supply-demand balance.
According to a forecast published by TrendForce on July 3, 2026, contract prices for conventional DRAM are expected to rise 13–18% quarter-over-quarter in Q3 2026 (July–September), while NAND contract prices are expected to rise 10–15%. Although this pace is slower than the 58–95% surge recorded in the first two quarters of 2026, it still marks the third consecutive quarter of price increases. Some analyses suggest that substantial capacity expansion is unlikely before late 2027 to 2028, meaning memory makers will likely retain the upper hand in choosing where to allocate supply for the foreseeable future.
Memory destined for sub-$400 smartphones sits at the bottom of that allocation priority. Higher-priced devices have enough margin to absorb costs—even by increasing memory capacity to maintain performance—while budget devices, which already operate on razor-thin margins, see memory price hikes eat directly into what little profit remains. Zaker Li, Principal Analyst for Mobile Devices at Omdia, notes that as memory prices continue climbing over the coming quarters, the situation is likely to worsen further.
Within a single smartphone, DRAM and NAND serve distinct roles: DRAM functions as working memory (commonly called RAM) that handles data while the device is running, while NAND serves as storage that retains photos and apps even when the power is off. This time, both are rising in price simultaneously, meaning the cost increase per device is compounding in a way that makes this cycle harsher than past memory price spikes.
How This Differs from the 2016–2018 DRAM Price Surge
This isn't the first time memory prices have spiked sharply. Looking back at industry price trends, DRAM prices roughly tripled between June 2016 and January 2018. At that time, demand from PCs, smartphones, and servers converged while wafer capacity expansion failed to keep pace; memory makers responded by ramping up investment in large-scale fabs, and prices eventually cooled off by 2019.
Whereas the 2016–2018 cycle was driven by smartphone and PC demand—something that could eventually be resolved simply by adding capacity—the current cycle is driven by AI data centers, a type of demand that gives memory makers little incentive to rush increased production of general-purpose products. HBM and server-grade DRAM carry higher margins, making it rational for manufacturers to prioritize investment in HBM production lines over ramping up general-purpose DRAM output. The fact that the primary source of demand has shifted away from smartphones themselves is what makes this cycle particularly difficult. Industry analysis suggesting that substantial production increases are unlikely before late 2027 to 2028 implies a timeline roughly comparable to—or possibly longer than—the time it took for the previous cycle to cool down.
Overlaying these two timelines reveals a gap of more than a year between Omdia's warning of "worsening conditions over the coming quarters" and industry analysis suggesting that meaningful production increases are unlikely before late 2027. This is precisely the window during which manufacturers must choose between absorbing costs through price hikes or reducing their model lineups. The 22% decline figure can be read as a number that has already priced in the outcome of that choice.
Winners and Losers
Samsung, SK hynix, and Micron are positioned to prioritize shipments toward AI-related demand while simultaneously raising prices on smartphone-bound memory. The tighter the supply, the greater their negotiating leverage—a dynamic that represents pure profit expansion for whoever holds pricing power. Apple's and Samsung Electronics' device businesses, whose primary battlegrounds are already above the $400 price point, stand to directly benefit from the market's shift toward higher price tiers—the very 5.7% growth mentioned above.
On the other hand, brands catering to emerging markets—Transsion, Xiaomi, OPPO, vivo, and Honor—are seeing the thin-margin business model itself come under strain. Omdia points out that these manufacturers are moving to raise retail prices simply to preserve their already-thin margins. Counterpoint's analysis similarly shows that BOM costs for low-end devices have risen 25% since the start of 2025, far outpacing the 15% increase for mid-range devices and 10% for high-end devices. According to GSMArena, Counterpoint analyst Yang Wang noted that large price increases are not sustainable in the low-end segment. The less room a price tier has to raise prices, the more directly rising costs translate into shrinking profits.
The same dynamic is expected to extend to Japan's market as well. Domestic budget lines like arrows We and AQUOS wish rely on the same globally shared memory supply chain as overseas brands, so they cannot escape the cost pressures either. The roughly ¥50,000 price increase for the AQUOS R11 and the roughly ¥30,000 increase for the Xperia 1 VIII are real-world examples showing that cost pass-through has already begun in Japan's mid-to-high-end segment. IDC's initial scenario projected an average global price increase of around 8%, and given that subsequent forecasts have since risen to a 14% ASP increase (to $523), this is not an issue confined to distant markets—it's directly relevant to Japanese consumers as well.
The Battle at the ¥64,000 Line and the Distance to Expanded Supply
Converted at the yen-dollar exchange rate as of July 3, 2026 (around ¥161), the $400 threshold works out to roughly ¥64,000. In terms of Japanese carrier storefronts, that's squarely within the entry-to-low-mid price range—meaning the 22% decline facing Transsion and Xiaomi is anything but a problem confined to markets across the ocean.
Memory price increases have traditionally been described as a cyclical phenomenon that settles once demand normalizes. This time, however, the driving force is AI data centers, and for memory makers, HBM and server-grade products are simply more profitable than general-purpose smartphone memory. There's no guarantee that production priorities will return to low-priced smartphones anytime soon, and until the period when substantial production increases become feasible—likely not before late 2027 to 2028—sub-$400 devices will remain on the losing end of this equation.
Means of absorbing costs are already emerging. Omdia points to manufacturers reverting high-end OLED panels from power-efficient LTPO technology back to LTPS (low-temperature polysilicon, an older, lower-cost panel technology), saving $3–5 per device, as well as holding SoC (the core processor chip in a smartphone) generations steady for one cycle in devices priced above $600, cutting SoC procurement costs by 30–40%. How far these kinds of design-side workarounds—beyond simple price hikes—spread into the budget segment will determine whether that 22% decline widens further or begins to level off.