Cheap smartphones are difficult to survive because of the memory chip crisis
According to the smartphone technology trend report from market research firm Omdia, the production of phones priced under 400 USD is estimated to plummet 22% this year. The downturn in the low-cost segment is estimated to cause the global mobile market in general to decrease by 12% compared to the same period last year.
Tom's Hardware said the core cause of this crisis stems from the continuous increase in contract prices of DRAM and NAND Flash memory chips. The cost of raw components "has been pushed to unimaginable levels", turning the problem of maintaining the already thin profit margin of low-cost phones into an impossible task.
According to Omdia data, in the period from the third quarter of 2025 to the first quarter of 2026, the proportion of costs for memory chips inside devices under 400 USD has nearly doubled, accounting for 60% of the total device component cost. Even scarier, in the super cheap segment under 99 USD, storage components account for 64% of the production budget. When memory accounts for 2/3 of the hardware value, manufacturers have almost no budget left to pay for processor chips, screens, batteries, camera sensors or chassis.
This extreme shortage of memory chips is due to the fact that semiconductor giants such as Samsung, SK hynix and Micron have simultaneously turned their backs on conventional commercial memory chips to focus all their efforts, converting production lines to high-bandwidth memory production to serve AI data centers, which bring huge profit margins.
In previous market cycles, mobile companies often offset costs by cutting other components. However, low-cost phone lines of configuration kings from China such as Xiaomi, Oppo, Vivo or Transsion have already been cut to the maximum and have no more room for optimization. Mr. Zaker Li, chief analyst at Omdia, said companies are forced to increase retail prices to maintain microscopic profits. But because ordinary customers are extremely price sensitive, a phone suddenly increasing from 150 USD to 220 USD will make the need to buy immediately disappear. Faced with this reality, many big companies are quietly withdrawing from the market, discontinuing super cheap models to focus on segments that bring better profits.
In contrast to the collapse of the group under 400 USD, the mid and high-end smartphone segment, over 400 USD is forecast to still grow steadily at 5.7%. However, to survive the memory chip price storm, flagship killer models are also having to make hardware cuts. Many Chinese brands have had to downgrade from advanced LTPO OLED screens to older LTPS OLED panels to save 3-5 USD per device. Even to reduce chip costs by 30-40%, companies accept to reuse older generation processors, while eliminating secondary cameras such as macro lenses, super wide angles or reducing the size of the image sensor.
For high-end segments such as iPhone 17 Pro or Galaxy S26 Ultra, because the device's value lies in the titanium frame, customized chip or expensive periscope camera, the proportion of memory chip in the total production cost is not too large. However, the difference will still be calculated directly into the selling price by companies, making increasing the retail price of high-end products a "new normal" in the market.
Analysts say users will have to be patient if they want to wait for phone prices to cool down. According to Bloomberg, on June 29, the Korean Minister of Industry said that Samsung and SK Hynix will each build two chip factories, with a total investment of 800,000 billion won (518 billion USD) with the goal of doubling national memory chip output. Micron is also expanding production complexes in the US and Japan.
However, building, installing equipment and operating a semiconductor factory takes a roadmap of several years. The supply of memory chips for consumer devices can only be cleared in mid-2027 at the earliest and it will take until 2028 for the market to stabilize. Until then, the "RAMaggedon" crisis will continue.
Huy Duc