AI ends era of cheap smartphones, India sees highest price rise

The cheapest smartphones are disappearing because the memory chips used in phones have become scarce. AI data centers are consuming much more memory, so phone makers face higher component costs. Existing models have risen about 15% globally, while new models cost roughly 25% more than last year.

Chinese manufacturers are especially important because they ship about 60% of smartphones worldwide and built their businesses around affordable devices. As memory costs climbed, companies such as Xiaomi, Oppo, Vivo, and Huawei reduced investment in phones below $150 or $200. They are putting more resources into premium devices, branding, user experience, and AI features.

This is shrinking the market for phones under $150. Shipments of sub-$100 smartphones fell almost 60% year over year in the second quarter of 2026. Analysts do not expect costs to return to pre-2025 levels, meaning the cheapest devices may remain harder to find.

Existing smartphone prices have risen about 15% globally this year. Newly launched models are roughly 25% more expensive than last year. Regional increases vary sharply: prices rose 21% in India, 19% across Asia-Pacific, and 18% in the Middle East and Africa, compared with 5% in the United States.

The article identifies the global cause: AI data centers are drawing memory chips away from consumer electronics. Scarcity raises memory prices, and manufacturers pass those costs to buyers. India’s increase is illustrated by Xiaomi’s Redmi 15C, whose 128GB version rose from Rs 12,499 to Rs 16,999 in six months.

The article does not explain why India’s increase is larger than America’s. It does show that low-cost phones are especially exposed. Chinese companies are reducing entry-level products, while the United States has a smaller reported increase. Regional market conditions may differ, but the source does not specify them.

A memory chip is an electronic component that stores data. In a smartphone, it holds items such as the operating system, apps, photos, and temporary working data. More memory can help a phone handle larger apps and more tasks. The source does not define memory chips, so these functions come from established technical knowledge.

AI data centers use memory in powerful computers that train and run artificial-intelligence systems. These systems process enormous datasets and need fast access to information while calculations are underway. Their demand is much larger than that of a single consumer phone. The article reports that memory makers shifted most supply toward AI centers in late 2025.

That shift leaves phone companies scrambling for inventory. Scarcity pushes memory prices higher, increasing the cost of making smartphones. Manufacturers then pass some of those costs to consumers. The result is more expensive phones and fewer very cheap models, especially below $100 or $150.

Samsung Electronics, SK Hynix, and Micron Technology make up more than 90% of the global memory-chip market. In late 2025, all three shifted the vast majority of their supply toward AI centers instead of consumer electronics. This reduced the memory available for smartphones.

The main driver is demand from AI infrastructure. The three companies have entered partnerships with US AI giants, while hyperscalers are rapidly increasing their spending. Capital expenditure by Alphabet, Amazon, Microsoft, Meta, Oracle, and SpaceX is projected to exceed $1.3 trillion in 2027, compared with $470 billion in 2025.

The article presents AI centers as the more attractive destination for scarce memory, though it does not give specific profit margins. Phone manufacturers were left scrambling for inventory. Memory scarcity then raised component prices, which were passed to consumers through more expensive phones and reduced entry-level production.

Chinese smartphone companies built their businesses around affordable phones with increasingly sophisticated features. But rising memory-chip costs have changed the economics of that strategy. Entry-level devices usually have less room to absorb higher component costs, so manufacturers are reducing investment in models below $150 or $200.

Ivan Lam of Counterpoint said companies would rather direct resources toward higher-margin phones, branding, user experience, and AI. The shift is visible across markets. Oppo’s sub-$100 shipments in Southeast Asia plunged 96%, while Vivo moved its main entry-level model above $100 in most markets. Xiaomi also raised the price of a Redmi 15C in India by 36%.

Chinese manufacturers account for approximately 60% of smartphones shipped globally, so their decisions have broad effects. More than one in four smartphones shipped globally in 2025 cost less than $150, but that segment is shrinking. Analysts expect prices to remain above pre-2025 levels.

For people who have never owned a smartphone, losing the cheapest models can create a larger barrier to internet access. A phone is needed to reach mobile internet and increasingly important services delivered online. If entry-level devices become unaffordable, first-time users may remain offline longer.

The burden is greatest for poorer consumers. GSMA reports that an entry-level smartphone costs the poorest 20% the equivalent of 44% of monthly income. In sub-Saharan Africa, the figure reaches 76%. Africa also relies heavily on low-cost devices: 81% of smartphones shipped there last year cost less than $200.

GSMA had projected nearly 800 million additional mobile-internet users by 2030. Its digital-inclusion team is concerned that rising prices could weaken that projection. The effects may also reach the United States as more essential services move online and smartphone supply chains become more expensive.

Supply and demand help explain the smartphone price increases. Supply is the amount of memory-chip capacity available. Demand is how much phone makers and AI data centers want. When AI centers demand far more memory while production cannot quickly expand, the available supply for phones becomes scarce.

The three main memory manufacturers shifted most of their supply toward AI centers in late 2025. AI companies and hyperscalers are investing heavily in infrastructure, creating powerful demand. Phone companies were left scrambling for inventory. With fewer chips available, memory prices rose, increasing smartphone production costs.

Producers also have an incentive to serve customers willing to pay more or generate better returns. Chinese phone makers responded by reducing low-margin models and emphasizing premium devices. Consumers then face higher prices and less choice. Shipments of sub-$100 smartphones fell almost 60% year over year in the second quarter of 2026.