Months after analysts warned that AI-driven demand for memory chips would ripple through consumer electronics, India is providing the strongest evidence yet that the disruption has arrived, with rising handset prices reshaping the smartphone market.
Understanding the Memory Crunch
The memory chips in question — RAM and storage components — are the same ones tech giants need by the truckload to build AI data centers. Manufacturers like Samsung, SK Hynix, and Micron have been shifting production capacity toward high-bandwidth memory (HBM), the specialized chips used in AI accelerators, because they’re much more profitable per wafer than the standard memory used in phones and laptops. This has left less capacity for traditional DRAM and NAND flash, driving up costs for everyday consumer electronics. The trend began in earnest in 2024, when AI model training exploded in scale, and has only accelerated since. By early 2026, memory makers were allocating over 40% of their wafer starts to HBM, up from less than 10% three years earlier. This supply-demand imbalance has caused spot prices for 8GB LPDDR5 modules to more than double over the past 18 months, with similar increases for NAND flash storage used in smartphones.
India Feels the Pinch Most
India, the world’s second-largest smartphone market by shipments after China, saw smartphone shipments fall 10% year-over-year in the April-June quarter, according to market research firm Counterpoint Research, marking the steepest June-quarter decline in six years as higher memory costs pushed up handset prices. The impact has been more pronounced in India than in China, where smartphone shipments fell just 2% in Q2, according to Counterpoint. India has been hit harder because about 60% of its smartphone market is concentrated in the sub-₹20,000 (under $210) segment, where higher memory costs have had the biggest impact on prices, Tarun Pathak, the firm’s vice president of research, told TechCrunch. In China, by contrast, the mid-to-premium segment holds a larger share, insulating it somewhat from the price sensitivity that defines the Indian market.
India has been a prominent market for global smartphone brands for several years. The South Asian nation, home to more than 1.4 billion people and over 700 million smartphone users, has become a bellwether for consumer demand in price-sensitive markets, making shifts in buying patterns closely watched by device makers, chip suppliers, and investors tracking the broader health of the AI supply chain. The country’s smartphone penetration is still well below 60%, meaning a large pool of potential first-time buyers exists. However, rising prices are now pushing those buyers out of the market or forcing them to consider secondhand devices. Analysts note that even affordable 5G smartphones — once hailed as the catalyst for digital inclusion — now carry price tags that strain household budgets in a country where median monthly income hovers around ₹25,000.
Consumers Delay Upgrades
Pathak told TechCrunch that consumers are unlikely to abandon smartphones altogether. However, many of them are expected to delay upgrades, stretching replacement cycles to around four years from about 3.5 years previously, while premium brands such as Apple and Samsung remain better insulated from the slowdown. This shift in upgrade behavior is already visible in secondary market data: platforms like Cashify and Budli report a 30% year-over-year increase in demand for refurbished phones, as cost-conscious buyers seek to stretch their budgets. The average selling price of a new smartphone in India has risen from around ₹16,500 in early 2025 to nearly ₹22,000 by mid-2026, driven almost entirely by memory component cost inflation. For a low-income household, even a ₹400 monthly increase in EMI for a phone can be a significant burden, leading many to postpone purchases indefinitely.
Uneven Impact on Brands
The uneven impact is already reshaping competition among smartphone makers. Samsung was the only major smartphone brand to post shipment growth in India in Q2, with volumes rising 2% year-over-year, according to Counterpoint. This growth came despite Samsung also facing memory cost pressures, but the company’s strong brand loyalty and extensive offline retail presence — covering over 150,000 touchpoints — helped it weather the storm better than rivals. Apple, by contrast, saw shipments fall 3% — though that dip largely reflected supply constraints and inventory shortages limiting how many iPhones Apple could deliver. Apple’s premium positioning means its customers are less price-sensitive, and the company has also benefited from aggressive financing schemes that allow buyers to pay in installments over 18 to 24 months with zero interest, effectively lowering the upfront cost barrier.
Consumers buying higher-end smartphones have proved less sensitive to price increases, with financing making expensive devices more affordable, Prachir Singh, a senior analyst at Counterpoint Research, told TechCrunch. In the premium segment (₹45,000 and above), shipments actually grew 5% year-over-year, driven by strong demand from affluent urban professionals and corporate buyers. However, this growth was not enough to offset the massive decline in the budget segment, which dragged down overall market numbers.
The Budget Segment Collapse
The pain has been most acute at the lower end of the market. Shipments in the sub-₹15,000 (under $150) segment fell 45% from a year earlier, Counterpoint said. Because Chinese brands are heavily exposed to entry- and mid-tier smartphones, their combined market share fell to its lowest level for a second calendar quarter since 2020. Brands like Xiaomi, Realme, and Vivo — which once dominated the sub-₹10,000 category — have been forced to either absorb cost increases (squeezing already thin margins) or raise prices, risking further volume loss. Most have chosen the latter, resulting in a 12-18% price hike on entry-level models compared to a year ago. The effect on market share has been dramatic: Xiaomi’s share dropped from 18% in Q2 2025 to 13% in Q2 2026, while Realme fell from 12% to 8%. Even market leader Samsung’s share in the budget segment slipped from 25% to 22%, though its overall position was buoyed by strong performance in the mid-to-premium range.
The tougher economics are also prompting strategic shifts. This week, Chinese smartphone brand OnePlus said it would stop launching new products in Europe and North America, while maintaining its India business, following what it described as a careful assessment. Counterpoint data shared with TechCrunch showed China accounted for 74% of OnePlus’ global smartphone shipments to distributors and retailers in Q1, up from 59% a year earlier, while India’s share fell to 19% from 30%. OnePlus’ retreat highlights a broader trend: budget-focused brands are abandoning markets where they cannot sustain profitability. The company’s decision to pull out of the West was driven by escalating logistics costs, trade tariffs, and the memory price premium making its value proposition less competitive against subsidized offerings from carriers like Verizon and T-Mobile.
In other words, OnePlus is retreating to markets where it can still turn a profit and ceding ground elsewhere — a pattern likely to repeat across other budget-focused brands as margins tighten. Indeed, Pathak told TechCrunch that running several sub-brands only makes sense if each one sells enough volume to cover shared costs, and that math stops working once margins get this thin. “Sub-brands normally have overlaps and shared resources, and you need a minimum base to justify the cut-throat margins. Profitability is the key to deciding market operations,” he said. This has already led to the consolidation of sub-brands under larger umbrellas: BBK Electronics, which owns Vivo, Oppo, Realme, and OnePlus, is reportedly merging some back-end operations to reduce overheads.
Consumers Feel the Squeeze
That pressure on brands is trickling straight down to the people buying their phones. Kiranjeet Kaur, associate research director for mobile phones research at IDC, said the Indian smartphone market is shifting from volume-led growth to value growth — meaning fewer phones are being sold overall, but each one generates more revenue — as higher component costs make lower-priced smartphones increasingly uneconomical. This shift is forcing vendors to rethink their product lineups. Many are now launching phones with base configurations of 6GB RAM and 128GB storage (up from 4GB/64GB a few years ago), not because consumers demand it, but because the cost difference between memory tiers has narrowed so much that it makes little sense to offer lower-specced devices.
The higher component costs are already filtering through to consumers. Smartphone prices in India have risen by between 4% and 68%, depending on the model, Pathak said, and as prices rise, consumers are either moving to higher-priced devices, delaying upgrades, or turning to the secondhand market. The secondhand market, in particular, is booming. Platforms like Olx, Cashify, and Budli have reported transaction volumes surging by 40-50% year-over-year in the first half of 2026. Devices that once would have been traded in for a new phone are now being resold directly to other users, feeding a robust circular economy. This trend is also being fueled by institutional buyers — such as kirana stores (small neighborhood shops) — that are buying bulk lots of used smartphones to offer as discounts or giveaway items to customers who spend a minimum amount.
Financing has meanwhile become “central to affordability,” Kaur told TechCrunch. She added that brands and retailers were also building inventory ahead of the festive season to lock in lower costs before further increases in component prices. The festive season (typically September-December) accounts for nearly 40% of annual smartphone sales in India, so advance stockpiling is critical to maintaining market share. However, analysts caution that inventory built at today’s memory prices may still need to be sold at discounts if consumer demand remains soft, further squeezing margins.
IDC also expects India’s smartphone shipments to decline by double digits in Q2, a steeper fall than the 4.1% decline in the first quarter and the 5.3% drop in the previous quarter, Kaur said. However, she noted the firm’s estimates were not yet finalized. The prolonged slump has also impacted component suppliers in India, including Dixon Technologies and Bhagwati Products, which assemble phones for global brands under contract. These firms are reporting lower capacity utilization as order volumes shrink, and some are diversifying into assembling other electronics like smartwatches and tablets to stay profitable.
Kaur told TechCrunch that memory shortages and elevated smartphone prices were likely to persist until at least the end of 2027, although the pace of price increases should moderate as consumers gradually adjust to higher prices becoming the new normal. She added that global memory makers have signaled plans to bring additional HBM capacity online in 2028, which could eventually relieve some pressure on standard memory production. In the meantime, the Indian market is adapting in ways that may permanently alter its structure: more premium devices, longer upgrade cycles, and a growing reliance on financing and refurbished devices.
“For Indian consumers, it is a double whammy as the weaker currency makes imports costlier, which has added to margin pressures for the market players, and they are passing on the cost to the consumer,” Kaur said. The Indian rupee has depreciated roughly 8% against the U.S. dollar over the past 12 months, adding another layer of cost inflation. The government has so far resisted calls to impose price controls on memory components, arguing that market forces should correct the imbalance over time. However, industry bodies like the India Cellular and Electronics Association (ICEA) have urged the government to offer tax breaks or subsidies to domestic manufacturers to offset the memory price surge.
Source:TechCrunch News