Smartphones to get costlier in 2026: Here's why
What's the story
If you're planning to buy a new smartphone in the next year or two, you may want to start saving. A recent study by Counterpoint Research has revealed that the next generation of smartphones could be significantly more expensive. The main reason behind this price hike is the growing demand for artificial intelligence (AI) infrastructure, which is impacting global tech supply chains.
Cost impact
AI data centers and smartphone production costs
AI data centers are consuming critical components at an unprecedented rate, putting pressure on smartphone manufacturers. This is driving up production costs and likely increasing prices for consumers. The main culprit behind this problem is memory, specifically DRAM chips that are essential for next-gen smartphones and advanced AI servers alike. These chips enable complex tasks, from running powerful AI models in server racks to keeping smartphones responsive while multitasking with apps, games, and photos.
Supply squeeze
AI data centers outbid smartphone manufacturers
AI data centers, especially those powered by advanced NVIDIA-based systems, are more profitable for memory suppliers than smartphones. This has led to a supply squeeze as manufacturers prioritize these high-margin customers over consumer electronics. Counterpoint analysts predict that this imbalance could worsen through 2026, with memory prices expected to rise by up to 40% in the first half of that year alone.
Market forecast
Smartphone production costs and global shipments to decline
The rising costs are already reflected in the "bill of materials" (BoM), or the total cost of components needed to build a phone. Budget devices under $200 have been hit hardest, with production costs jumping by 20% to 30% in just one year. Mid-range and premium phones are also facing BoM increases of 10% to 15%. Counterpoint now predicts that global smartphone shipments will decline by 2.1% in 2026, reversing earlier growth forecasts.
Price prediction
Average smartphone prices to rise by 6.9%
Counterpoint expects the average selling price of smartphones worldwide to rise by 6.9% in 2026, a much steeper jump than previously anticipated. This increase is likely to be passed directly onto consumers. However, not all brands are equally exposed to these cost increases. Industry giants like Apple and Samsung are better positioned due to their scale, strong supplier relationships, and dominance in the premium segment of the market.
Market adjustment
Smaller manufacturers face challenges, potential shift in product strategies
Smaller manufacturers, especially those focusing on mid-range and budget devices, are facing more challenges. Many Chinese brands competing aggressively on price are already making difficult compromises to keep phones affordable. Looking ahead, manufacturers may rethink their product strategies with a stronger push toward higher-priced "Pro" models that offer better margins. However, for consumers, this could mean higher prices and slightly lower specifications in the coming years.