AI Is Making Smartphones More Expensive—But Not For the Reason You Think

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The AI-driven memory shortage may show up in smartphone prices soon.

Executives at Arm Holdings (ARM) warned on the chip designer’s earnings call Wednesday evening that smartphone demand could decline this year as a memory shortage pushes up prices. “We're going to continue to see very flattish, maybe slightly negative numbers for the overall market,” said CEO Rene Haas of smartphone volumes this year.

Counterpoint Research estimates global smartphone shipments declined 6% in the first quarter as the memory shortage “disrupted supplies and increased costs” for manufacturers. According to International Data Corporation, which estimates shipments fell 4%, last quarter’s decline broke a 10-quarter growth streak for the smartphone market.

The AI data center boom has caused demand for a variety of industrial inputs and products, ranging from Nvidia GPUs to electricity, to surge. The most pressing bottleneck today—a memory shortage—is expected to eventually spill over into consumer electronics prices.

“This decline in shipments is primarily driven by memory players prioritizing AI data centers over consumer electronics,” which has compressed smartphone makers’ margins and forced them to raise prices to offset higher component costs, said Counterpoint senior analyst Shilpi Jain.

The prices of digital memory and data storage hardware have soared over the past year due to surging demand from AI data centers. Flash memory supplier Sandisk (SNDK) last week reported its sales to data centers tripled quarter-over-quarter. Tech giants, eager to get a leg-up on their competition in the AI arms race, are paying hefty premiums to secure memory supply. Sandisk and memory peers such as Micron (MU) and Western Digital (WDC) are following the money, and that’s padding their bottom lines. Sandisk’s profit margin was 78% last quarter, up from 51% in the fourth quarter of 2025 and 23% a year prior.

The shortage hasn’t affected all smartphone makers equally. “In several emerging markets, prices have risen by as much as 40–50%, significantly weighing on demand in price‑sensitive regions,” said Nabila Popal, senior research director for Worldwide Consumer Devices at IDC. Chinese smartphone maker Xiaomi saw shipments decline nearly 20% due to "its heavy exposure to the price-sensitive entry-level segment," according to Counterpoint.

Apple (AAPL), on the other hand, sold 3% more iPhones last quarter than the prior year, according to IDC estimates. The company last week reported iPhone revenue increased nearly 22% in the first quarter.

Granted, Apple isn’t impervious to higher memory costs. CFO Kevan Parekh on the company’s earnings call last week attributed its narrowing profit margin on products to “a seasonal loss of leverage and higher memory costs.” But its “ultra-premium positioning and highly integrated supply chain,” are helping to take the edge off, according to Counterpoint.

Bank of America analysts last week said Apple could offset memory costs by raising prices on its next batch of high-end iPhones, which already start at $1,100. The iPhone, they said, is “a relatively price inelastic product,” meaning Apple can raise prices without meaningfully hurting demand.

Analysts don’t expect the memory shortage or its pressure on smartphone sales to let up soon. “The outlook for 2026 remains weak, as the memory crunch may last until late 2027,” according to Counterpoint.

Memory troubles could even reshape the smartphone market over the next couple of years. IDC expects the memory shortage to accelerate the market’s drift toward high-end models with higher prices and wider margins. “The premiumization trend will continue even as the memory prices are expected to stabilize by the second half of 2027,” IDC analysts wrote.

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