AI smartphones drive budget phones toward crisis as memory costs squeeze smaller brands

Thanks, AI companies: Sub-$400 phones could see a huge decline due to RAM crisis

The rising memory costs can be largely attributed to AI companies shoring up High-Bandwidth Memory for their data centers. It's no secret that there's an industry-wide RAM crisis at the moment, leading to exorbitant price increases across multiple product categories. We already know the situation looks bleak for $500 midrange phones in the near future, and new research is predicting a similar fate for sub-$400 smartphones. Research published by Omdia shows that memory costs for sub-$400 phones in Q1 2026 accounted for 59% of the total BOM (bill-of-materials) cost, as shown in the graph below. By comparison, device memory accounted for only 32% of the total component costs in Q3 2025. The graph shows that cheaper smartphones are taking a bigger hit due to rising RAM costs, while more expensive phones are absorbing some of that impact better, though they aren't immune to the issue either. While RAM costs are significant for phones priced in the sub-$400 segment, they account for 64% of the cost among sub-$100 phones. Omdia's forecast in May predicted that the global smartphone market will fall 12% year-over-year in 2026. The expected 22% decline in shipments of sub-$400 phones may play a big role in this scenario. With RAM costs eating into already slim profit margins, manufacturers could move away from the sub-$400 segment in 2026 and focus on more premium smartphones. So it's not particularly surprising that shipments of phones priced over $500 are predicted to grow by 5.7% this year. We've also recently learned how Samsung's decision to phase out older RAM may adversely impact several midrange and budget smartphones. For people who are in the market for a sub-$400 smartphone this year, there's a high likelihood you'll end up paying significantly more than you would have in 2025 for a similar device. With this in mind, it makes a lot of sense to get a last-gen smartphone in 2026.

Budget smartphones are getting squeezed, and AI is one reason why

Analysts warn shipments of phones under $400 could drop by more than 22% this year. For years, smartphone buyers have had it pretty good. Even budget phones now offer fast processors, high-refresh-rate displays, and cameras that would've seemed flagship-worthy just a few years ago. But that trend may be about to slow down, and AI is playing a big role. According to a new report from Omdia, global shipments of smartphones priced below $400 are expected to decline by more than 22% in 2026, largely because the cost of DRAM and NAND memory continues to rise. As AI features demand more memory across the industry, manufacturers are finding it increasingly difficult to build capable budget phones without sacrificing their already razor-thin margins. Why has memory suddenly become so expensive Memory has always been one of the highest costs inside a smartphone, but Omdia says it's becoming an even bigger burden. In the first quarter of 2026, memory alone accounted for nearly 60% of the bill of materials in smartphones priced below $400, rising to more than 64% for phones costing under $99. That's left manufacturers with very little room to absorb further price increases. Brands have already tried trimming costs elsewhere by using cheaper display panels, camera sensors, and radio components, but Omdia says low-end smartphones are already so tightly optimized that there simply isn't much left to cut. As a result, companies like Transsion, OPPO, vivo, Honor, and Xiaomi are increasingly being forced to either raise prices or reduce specifications just to protect their margins. Premium phones aren't facing the same problem Interestingly, Omdia says this pressure is mostly limited to the budget segment. While shipments of phones under $400 are forecast to fall by more than 22%, smartphones priced above $400 are expected to grow by 5.7% this year. Premium devices simply offer manufacturers far more flexibility to offset higher memory costs by tweaking displays, cameras, or even using older chipsets where it makes sense. The funny thing is that AI was supposed to make smartphones more capable. Instead, it may also make them more expensive, or at least make truly affordable phones much harder to build. If Omdia's forecast proves accurate, the next generation of budget smartphones may end up offering fewer upgrades than we're used to, or disappear altogether as brands shift their focus toward more profitable devices.

The AI phone era is coming, and the weird brands may not survive it

The market once had room for strange, scrappy, genuinely good phones. AI could turn that room into another luxury suite. I have a soft spot for phone brands that made Android feel less inevitable. Meizu is one example, but there were plenty of smaller names with their own strange little gravity, from Fairphone's repair-first stubbornness to Unihertz's tiny oddballs, Shiftphone's modular ideals, Murena's de-Googled pitch, and Teracube's attempt to make phone ownership feel less disposable. They weren't always perfect, and some were never built to go mainstream, but they made smartphones feel alive around the edges. Now the AI phone push is arriving, and it already looks less like a creative explosion than a cover charge. Meizu said in 2024 that it would end new traditional smartphone projects and focus on AI-enabled devices, which sounds futuristic until it starts feeling like a warning label. The rich end gets to define the future Apple doesn't need to own the entire phone industry to bend it toward Cupertino. WSJ notes that Apple represents about one in five of the roughly 1.3 billion smartphones shipped last year, which puts it near Samsung and Xiaomi on raw volume. The real control starts higher up the price ladder. In phones priced at $600 or more, Apple controls more than two-thirds of the segment. At $1,000 or more, it takes more than three-quarters. That would already make the high-end segment lopsided, but it looks harsher when overall smartphone shipments are forecast to fall while premium phones are still expected to grow. Recommended Videos The safest money is gathering around the richest buyers, the strongest ecosystems, and the companies that can raise prices without setting their customer base on fire. AI raises the cover charge AI makes that imbalance harder to ignore because it raises the price of being taken seriously. A smaller phone brand can still buy a decent panel, tune a respectable camera, ship a fast charger, and build something with more personality than another glass rectangle wearing a camera island like a backpack. The next round asks for more. AI phones need newer chips, more memory, cloud infrastructure, model partnerships, longer software support, and a marketing budget big enough to sell people on the assistant they ignored last year. Counterpoint expects GenAI-capable phones to reach 45% of global shipments in 2026, up from 36% in 2025, which makes AI feel less like a bonus feature and more like the next entry fee. The squeeze isn't only happening in software. Reuters reported that IDC expects the smartphone market to see its biggest-ever decline in 2026, partly because AI infrastructure demand is helping drive up memory costs. Low-end Android makers are expected to take the hardest hit, while premium brands are better positioned to absorb the shock or pass it along. The weird brands are running out of room Some smaller phone brands were niche for good reasons. Some made genuinely bad software. Some treated updates like seasonal gossip. The useful ones still kept Android from feeling pre-chewed. The Android world was already watching Oppo, Realme, Vivo, and OnePlus blur into each other before AI became the new seriousness test. Meizu isn't the whole story, but it's a painfully tidy example. A brand that once helped make Android feel less uniform now has to explain its future through AI roadmaps and ecosystem language, because that's where the industry has decided seriousness lives. That's the part I don't want to lose in this next phone cycle. Odd little brands shouldn't have to beat Apple to justify existing. Sometimes the useful thing is simply having a phone industry where good, strange devices can hang around long enough to make the giants look a little less inevitable. AI is being sold as the thing that will make phones more personal. The bleak joke is that the companies most likely to survive the shift are the ones large enough to make every phone feel a little more the same.

AI smartphones enter a pricier phase: smaller brands squeezed

Analysts think AI phones will make up 45% of global smartphone shipments in 2026, up from 36% in 2025, as on-device assistants, image tools, and context-aware software become standard features. Getting to that point, though, takes newer chips, more memory, stronger neural hardware, cloud infrastructure, model partners, longer support windows, and bigger marketing budgets, which raises the cost of entry quite a bit for smaller brands. IDC is also forecasting the smartphone market's steepest drop ever in 2026. Server demand is pushing memory prices up, which hits low-end Android brands harder, while Apple, Samsung, and Google can fall back on premium buyers and sheer scale; IDC says Apple shipped about one-fifth of the 1.3 billion phones sold last year and holds more than two-thirds of the market above $600, plus more than three-quarters above $1,000. If you care about repairable, modular, privacy-focused, or just plain unusual phones, keep an eye on this. Brands like Meizu are already changing position, budgets are shifting away from experimentation and toward processors, memory, and ecosystems, and surveys still show that performance and battery life matter to buyers more than AI phone features do. The first big push will show up on premium phones, where smarter editing, translation, summaries, and proactive suggestions are already starting to roll out.