Cheap phones may disappear in the next 1-2 years

(Dan Tri) - As the memory chip shortage continues, smartphone manufacturers are under heavy pressure. The production of low-cost devices has become "almost unprofitable".

Memory costs for devices priced under $100 are expected to increase 400% in the third quarter. According to data from research firm Omdia for the most popular configurations, component costs have reached $70, compared to $14 in the same period last year.

Producing low-cost smartphones is increasingly difficult due to rising component prices (Photo: CNet).

According to Jusy Hong, senior research director at Omdia, memory prices have exceeded the total component costs of the entire device compared to a year ago.

"Given the rising price of memory chips, producing smartphones under $100 at the present time or in the near future is impossible," Hong shared.

Experts predict that large manufacturers may abandon this loss-making segment, despite strong consumer demand. Instead, they will shift to higher value products in the mid-range segment. This contributes to increasing the average retail price of phones.

When memory chip prices stabilize in the next 1-2 years, the low-cost segment will likely recover. However, experts warn that this market is gradually disappearing.

The smartphone industry has become a victim of the global AI craze. Memory chip manufacturers focus on products serving AI projects and data centers. As a result, the supply of conventional memory chips for consumer electronics devices is tight.

Global smartphone production fell 4% year-on-year. The report from Omdia forecasts total volume for the year will decline by 12%. Mid to low range handsets priced under $400 will face a steep drop of around 22%.

The average selling price of smartphones continues to increase (Photo: Tom's Guide).

Phone brands are passing on some of the costs to consumers. Data from Omdia shows the average price of a smartphone hit $577 in the first quarter, up 12% from a year ago.

"Memory costs will continue to increase in the coming quarters and the real impact will come in the second half of the year," Hong said.

In fact, phone brands also try to reduce costs by downgrading some hardware parameters such as screen and camera. However, component costs of other departments have also increased, so there is not much room for adjustment.

"It is very difficult for smartphone vendors to optimize costs. So sometimes their only option is to increase retail prices," shared Zaker Li, an analyst at Omdia.