AI is causing the biggest smartphone sales crash in history
Key Points
- Global smartphone shipments forecast to fall 14% in 2026, the largest annual drop on record
- Memory prices more than doubled between Q3 2025 and Q1 2026, then rose another 80% to 90% in Q2
- AI data centre demand and the phasing out of DDR4 chips are driving the increase
- Memory now makes up almost half the component cost of a sub-$200 phone
- Sub-$100 phone shipments expected to drop 36%, with Sub-Saharan Africa hardest hit
Global smartphone shipments will fall by 174 million units in 2026 as the AI boom drives the price of memory chips beyond the reach of budget phone makers.
The forecast comes from analyst firm Counterpoint Research in the GSMA’s State of Mobile Internet Connectivity 2026 report, published this week.
Shipments are expected to drop 14% from 1.26 billion in 2025 to 1.08 billion this year, the largest single annual decline the industry has ever recorded.
The rising cost of memory is responsible for the the collapse, as smartphones rely on two types: DRAM, which handles active apps and multitasking, and NAND, which stores photos, apps and files.
Prices for both more than doubled between the third quarter of 2025 and the first quarter of 2026, the report said. They then jumped a further 80% to 90% in the second quarter of 2026.
Demand from AI data centres is pulling supply towards high-performance chips such as LPDDR5x and DDR5. At the same time, manufacturers are winding down production of older DDR4 memory, which is what most entry-level handsets still use.
The squeeze falls hardest on the cheapest phones. Memory now makes up almost half the total bill of materials for a smartphone with a wholesale price under $200, up from around a fifth in the first quarter of 2025.
For mid-range phones costing $400 to $600 wholesale, memory accounts for close to 30% of component costs. Budget makers have far thinner margins to absorb the increase, so the cost passes straight to the shelf price.
The report cited two recent launches as evidence:
- Xiaomi’s Redmi A7 launched in April 2026 at around $110, 40% more than the Redmi A5 cost at launch a year earlier, with almost identical hardware and only slightly better software support.
- Realme’s C71 launched in India in June 2025 at ₹7,699 (about $80), the same price as its predecessor, and has since risen almost 70% to ₹12,999 (about $135).
Phones under $100 will take most of the hit. Counterpoint expects shipments in that segment to fall 36% this year, or around 90 million fewer devices.
Emerging markets depend most on those devices and will suffer the steepest declines. Sub-Saharan Africa is forecast to ship 16 million fewer smartphones in 2026, a fall of more than a quarter on 2025.
The GSMA announced a partnership with six African operators in 2025 to bring $40 4G smartphones to market. A single entry-level memory chip now costs more than $40 on its own, the report said, putting that target at significant risk.
Across low- and middle-income countries, an entry-level internet-enabled handset already cost 44% of average monthly income for the poorest 20% of people at the end of 2025.
Around 3.4 billion people worldwide still do not use mobile internet, and the report named handset affordability as the single biggest barrier to getting them online.
The GSMA said the AI drive for memory would continue to fuel demand and push prices higher. It added that more needed to be done to protect the supply of low-cost devices for first-time buyers to avoid entrenching digital divides further.
