Consumers may need to keep their current smartphones longer as AI-driven demand drives up memory prices and makes new handsets more expensive.
Research firm CCS Insight expects smartphone shipments to fall by 15% this year. Some entry-level devices have already recorded price increases of more than 50% compared with last year.
CCS Insight found that the primary smartphone market, covering new devices, contracted by 4.4% during the first quarter.
The decline came despite sales channels front-loading product inventory as device prices began to rise sharply. The result has weakened the outlook for the rest of the year.
In January, forecasts suggested handset prices could rise by 6% to 8%, while the most pessimistic estimate expected the global market to contract by as much as 5.2%.
By February, analysts expected global shipments to decline by around 8% and prices to increase by about 14%.
The main cause is the growing demand for high-performance servers filled with GPUs to process AI workloads.
Chipmakers have responded by prioritizing high-margin memory components for AI servers instead of producing standard DRAM and NAND used in smartphones and PCs.
This differs from the usual boom-and-bust memory cycle, where production problems limit supply and push prices higher.
The current pressure comes from demand by hyperscalers and has created a memory supercycle that could last until 2028.
“The memory chip crisis shows no sign of slowing down in the near future, ramping up the pressure on manufacturers and consumers. Memory components now account for more than 30% of a manufacturer’s bill of materials in some smartphones,” CCS research analyst Ben Hatton said.
“The full impact has yet to be felt in many regions, but device prices will accelerate over the rest of the year.”
Budget smartphones face the greatest pressure because memory and storage account for a larger share of their total production costs.
This has contributed to price increases of more than 50% for some entry-level devices.
The organized secondary smartphone market, covering traders in pre-owned devices, grew by 4% during the first quarter.
Consumers looking for lower-cost phones are increasingly turning to used devices as an alternative. CCS Insight expects the second-hand smartphone market to grow by 15% this year.
However, lower sales of new phones could eventually reduce the supply of pre-owned devices because the market depends on consumers upgrading and trading in their older phones.
A report published in May found that smartphone replacement cycles are getting longer. Consumers often keep their devices for more than four years, compared with the two-year replacement cycles that were previously common.
There are also fewer smartphone manufacturers, resulting in fewer product launches each year. “The secondary market has an opportunity to serve some of the demand that will be unfulfilled by the primary market,” Hatton said.
“The major challenge in the near term is to grow supply during a fallow period of flagship launches.”
Countries with mature trade-in programs will be better positioned to meet growing demand for used smartphones and could record stronger growth in the secondary market.
Europe may struggle to benefit because fewer than one-third of consumers in the region trade in or sell their old phones, limiting the supply of second-hand devices.
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