Worldwide handset shipments are forecast to suffer their sharpest fall on record as memory manufacturers prioritise lucrative artificial-intelligence infrastructure over affordable consumer devices

The artificial-intelligence boom was supposed to make smartphones more capable. Instead, it is helping make millions of them more expensive—or preventing them from being manufactured at all.

Global smartphone shipments are heading for their steepest annual contraction on record in 2026 as a severe shortage of memory chips disrupts production, pushes up component costs and places unprecedented pressure on manufacturers of affordable devices.

Market researchers now expect approximately 1.08 billion smartphones to be shipped worldwide this year, a decline of almost 14% compared with 2025 and the lowest annual total in more than a decade.

Behind that dramatic reversal lies an increasingly important consequence of the global AI race. Semiconductor companies are directing production capacity and investment toward the high-performance memory required by artificial-intelligence data centres, where demand is expanding rapidly and profit margins are considerably higher.

That shift is leaving fewer components available for smartphones, personal computers and other consumer electronics.

The result is a technology supply chain in which the infrastructure supporting AI services is competing directly with the devices consumers use to access them.

Every modern smartphone depends on several forms of memory.

Dynamic random-access memory allows applications and operating systems to run efficiently, while flash storage holds photographs, videos, software and personal data. More advanced AI phones generally require even greater memory capacity because some language, image and translation functions are processed directly on the device.

Manufacturers are therefore facing a difficult contradiction. Consumers are being encouraged to buy smartphones with increasingly sophisticated AI features, but the components needed to deliver those functions are becoming more expensive and harder to secure.

Memory producers have powerful financial incentives to serve data-centre customers first. Companies building enormous AI systems require vast quantities of advanced memory and are often prepared to pay substantially more than consumer-electronics manufacturers.

Smartphone brands must consequently choose between absorbing the higher cost, raising retail prices, reducing device specifications or producing fewer units.

For premium companies, those choices are uncomfortable. For manufacturers dependent on narrow margins, they may become existential.

The crisis is expected to be most severe at the lower end of the market.

Devices costing less than $150 are vital across large parts of Africa, Asia, Latin America and the Middle East, where smartphones provide the principal route to banking, education, government services, employment platforms and online communication.

These handsets are produced on extremely tight margins. Even a modest increase in the cost of memory can erase the manufacturer’s profit.

Companies may respond by offering less storage, using older components or raising prices. In some cases, the cheapest models could disappear entirely because they are no longer economically viable.

That would turn the semiconductor shortage into a digital-access problem.

A customer in a wealthy market may delay an upgrade or pay more for a premium device. A first-time buyer in a lower-income country may lose access to the smartphone market altogether.

The consequences could extend beyond handset sales. A reduction in affordable devices could slow the adoption of mobile-payment systems, digital health services and online education in economies that have built essential services around mobile connectivity.

Apple and Samsung are better protected

The downturn is unlikely to affect every manufacturer equally.

Apple and Samsung are relatively well positioned because of their scale, strong supplier relationships and concentration in the premium and upper-middle sections of the market. Higher-priced devices provide more room to absorb rising component costs without immediately destroying profitability.

Apple also benefits from a customer base that is generally more willing to pay for new features and remain within the company’s ecosystem. Strong demand for recent iPhones has helped insulate it from the broader collapse in shipment volumes.

Samsung faces greater exposure to lower-priced products but has a broad portfolio, extensive manufacturing capacity and substantial negotiating power with suppliers.

Smaller and value-focused companies face a more dangerous environment. Brands that rely heavily on emerging markets and inexpensive Android phones have less freedom to raise prices without losing customers.

The shortage could therefore accelerate consolidation within the industry, allowing the largest companies to gain market share while weaker competitors reduce their product ranges or retreat from certain countries.

The crisis exposes a growing divide at the centre of the technology industry.

AI development is consuming enormous quantities of capital, electricity, computing power and semiconductor capacity. The companies building data centres are competing for the same industrial resources required by many traditional consumer products.

That competition is beginning to produce what analysts have described as “chipflation”: rising prices caused by semiconductor demand spreading from the AI sector into the wider economy.

Smartphones are particularly vulnerable because they are manufactured in enormous volumes and contain multiple memory components. A cost increase of only a few dollars per handset becomes significant when multiplied across hundreds of millions of devices.

AI features are also pushing hardware requirements higher. Digital assistants capable of understanding images, remembering context and performing tasks across applications require stronger processors and more memory than conventional software.

The industry is therefore attempting to sell intelligence as the reason to upgrade while the cost of providing that intelligence makes upgrades less affordable.

One likely response is that people will postpone replacing their existing devices.

The traditional smartphone-upgrade cycle has already lengthened as yearly hardware improvements have become less dramatic and modern phones remain usable for longer. Higher prices could push consumers to retain handsets for another year or more.

That trend may benefit the refurbished-phone industry. Used premium devices can offer better cameras, displays and processors than newly produced budget models at similar prices.

Repairability and longer software support may also become more important purchasing factors. Consumers who once focused on camera resolution or processor speed could place greater value on whether a phone will receive security updates for several years and whether its battery can be replaced economically.

Manufacturers may have to adjust their strategies accordingly. Instead of launching large numbers of closely related models, some could simplify their portfolios and concentrate scarce components on a smaller selection of profitable devices.

New phones could offer less for more

Consumers may not always experience the shortage through obvious price increases.

Some companies could preserve familiar retail prices by reducing storage, limiting memory or using older components. A new generation of phones might therefore offer smaller improvements than buyers expect—or even weaker specifications in certain areas.

Promotional discounts may also become less generous as manufacturers and retailers protect margins.

The effect could be particularly visible in mid-range Android devices, where competition has traditionally produced rapid improvements in cameras, displays and storage capacity.

That era of continuously improving specifications at falling prices may be interrupted as component scarcity changes the economics of the market.

The smartphone industry has survived shortages before, including the semiconductor disruption that followed the Covid-19 pandemic. The present crisis, however, may prove more persistent because it is connected to a structural reallocation of manufacturing capacity rather than a temporary factory shutdown.

AI companies are continuing to expand data centres, while chipmakers are investing heavily in the specialised products those facilities require. Building new semiconductor capacity is expensive, technically complex and slow.

Even when additional factories open, manufacturers will prioritise the components offering the strongest returns.

A meaningful smartphone recovery may therefore depend not only on increasing memory supply, but also on whether the pace of AI infrastructure investment begins to stabilise.

For several years, the technology industry has presented artificial intelligence as an invisible software revolution—something delivered through applications, cloud platforms and digital assistants.

The smartphone downturn reveals its physical cost.

AI depends on factories, minerals, electricity, cooling systems and enormous volumes of semiconductors. When those resources are redirected toward data centres, other industries feel the consequences.

Consumers may encounter that reality not through an AI subscription or chatbot, but through the price of their next phone.

The devices of the future may indeed be more intelligent. The immediate danger is that fewer people will be able to afford them.