Shipments of budget smartphones under $400 are forecasted to drop more than 22% in 2026 as rising DRAM and NAND memory costs, intensified by AI requirements, pressure manufacturers' margins and force potential price hikes or reduced specs.
- Memory costs now account for over 60% of budget smartphone components.
- AI-driven memory demands are key in rising production expenses.
- Shipments of phones priced above $400 are expected to grow by 5.7% in 2026.
What happened
A recent Omdia report reveals that shipments of smartphones priced below $400 are projected to decline by more than 22% in 2026. This shift is largely linked to rising costs of DRAM and NAND memory components, which have become increasingly expensive due to the growing requirements of AI features integrated into mobile devices.
Budget smartphone manufacturers are facing squeezed profit margins, as memory costs now constitute nearly 60% of the bill of materials for devices under $400, and over 64% for those under $99. Efforts to cut expenses by using cheaper displays, cameras, and radio parts have reached their limits, leaving companies with little room to maneuver without affecting device quality or price.
Why it matters
The rising memory costs driven by AI technologies are disrupting the segment of the market that has traditionally empowered consumers with affordable, capable smartphones. This squeeze threatens to slow innovation and reduce consumer choices in the budget category, potentially pushing some manufacturers to increase prices or reduce specifications just to maintain profitability.
This dynamic also highlights the growing divide between budget and premium smartphones. Devices priced above $400 are expected to see shipment growth of 5.7% in 2026, benefiting from greater flexibility in component selection and cost management that is less available to budget device makers. The trend signals a potential shift in market focus toward higher-end models.
What to watch next
Industry observers should monitor how leading budget brands such as Transsion, OPPO, vivo, Honor, and Xiaomi respond to these cost pressures—whether through introducing new pricing strategies, adjusting hardware specifications, or consolidating product lines. The balance they strike will shape the accessibility and capabilities of budget smartphones in the near future.
Additionally, tracking how AI integration evolves in mid-range and premium smartphones will be important. Manufacturers will likely leverage these segments to offset rising costs, which may accelerate innovation in higher-end devices but leave budget users facing fewer or less frequent upgrades.