Analysts now expect the global smartphone market to shrink in 2026 as rising chip and memory costs push device prices higher. Forecasts point to smartphone shipments falling 2.1% worldwide as input costs pile up, while separate projections warn that smartphone prices may jump 6.9% in 2026 as AI-driven chip shortages and memory constraints raise bills of materials across the industry.
Revised 2026 smartphone market outlook
Market expectations for 2026 have shifted from cautious optimism to contraction, with a new outlook indicating that the smartphone market is expected to shrink in 2026 due to rising chip and memory costs, as detailed in a market expectations update. Instead of the modest growth many manufacturers had been targeting, the latest projections now anticipate a pullback in unit volumes as component inflation filters directly into retail pricing. For brands that rely on steady annual upgrades to sustain revenue, a shrinking market signals tougher competition for every sale and a renewed focus on profitability over pure shipment scale.
The latest shipment forecast shows that global smartphone shipments are expected to shrink 2.1% as input costs pile up, according to a shipment report on worldwide volumes. That 2.1% decline may appear modest on paper, but in a mature market where growth is already slow, it represents tens of millions of devices that will not be sold. For component suppliers, carriers, and app ecosystems that depend on a steady flow of new hardware into consumers’ hands, even a low single-digit contraction can translate into weaker upgrade cycles, slower adoption of new features, and more pressure to extract value from existing users rather than counting on constant hardware expansion.
Industry research indicates that 2026 smartphone shipment forecasts have been revised down specifically because a memory shortage is driving bills of materials costs higher, as highlighted in Counterpoint Research’s forecast on BoM pressures. When memory prices spike, manufacturers face a difficult choice between raising prices, cutting specifications, or accepting lower margins, and each option carries risks for brand perception and demand. I see this dynamic as a key reason why the market is tilting toward contraction, since higher component costs are colliding with already stretched consumer budgets in many regions.
Rising chip costs and AI-driven shortages
Chip shortages tied to surging AI demand are emerging as a central driver of higher smartphone prices, with projections that these shortages will increase smartphone prices by 6.9% in 2026, according to an analysis of how AI workloads are straining semiconductor supply in a Gigazine report on AI-driven chip constraints. As data centers, AI accelerators, and edge-computing devices compete for advanced process nodes, smartphone makers are finding themselves in a bidding war for the same cutting-edge capacity. The result is a more expensive supply chain that ultimately feeds into the price of mainstream devices, raising the barrier for consumers who might otherwise have upgraded to new models.
Concerns about rising chip costs are echoed in projections that smartphone prices may jump 6.9 per cent in 2026 as chip shortages push costs higher, a figure highlighted in India Today’s coverage of the expected price spike. A near 7% increase in average selling prices within a single year is significant in a category where many buyers already stretch finances to afford mid-range and premium devices. I interpret this as a warning sign that the traditional model of annual or biennial upgrades could weaken further, particularly in price-sensitive markets where consumers may hold onto devices for four or five years if new phones become noticeably more expensive.
These AI-related chip shortages are feeding into broader input-cost pressures that are already weighing on global shipments, as described in a global shipments outlook that links higher component prices to weaker volumes. When core processors, connectivity chipsets, and power-management components all become more expensive at once, manufacturers have limited room to absorb the shock without passing it on. For the wider tech ecosystem, this convergence of AI demand and smartphone supply constraints suggests a period in which innovation may be shaped as much by what components are available at scale as by what features engineers want to deliver.
Memory shortages and surging BoM costs
Alongside processor constraints, memory has become a critical bottleneck, with 2026 smartphone shipment forecasts revised down because a memory shortage is driving BoM costs up across the sector, according to Counterpoint Research’s detailed breakdown of memory-driven BoM inflation. Dynamic random-access memory (DRAM) and NAND flash are central to modern smartphones, especially as devices pack in more on-device AI features, higher-resolution cameras, and larger app footprints. When memory prices climb, the cost impact is magnified across every storage tier, from entry-level 128 GB models to 1 TB flagships, leaving manufacturers with fewer levers to keep prices stable without cutting capacity that users increasingly expect as standard.
The expectation that the smartphone market will shrink in 2026 specifically due to rising memory costs is a key theme in a 9to5Google market outlook that ties demand softness directly to component inflation. Memory is not a feature that consumers see or interact with directly, yet it underpins everything from multitasking performance to the ability to store 4K video and large games like Genshin Impact or Call of Duty: Mobile. I view the current memory squeeze as particularly problematic because it forces brands to either compromise on user experience by limiting storage and RAM or risk pricing devices out of reach for the very customers who most value those capabilities.
Cost challenges in 2026 are not limited to memory chips themselves, with component pricing pressures extending to other high-value parts, as detailed in a Digitimes industry report on high-end smartphones and camera costs. As camera modules, image sensors, and advanced optics become more expensive alongside memory, the total BoM for premium devices rises sharply, making it harder for manufacturers to differentiate without pushing prices even higher. For consumers who have grown accustomed to rapid improvements in camera quality and storage at similar price points, the combination of memory and camera cost inflation could mean slower visible progress from one generation of devices to the next.
Impact on device pricing and consumer demand
Rising component costs are already feeding into forecasts that smartphone prices may jump 6.9 per cent in 2026 as chip shortages push costs higher, a rise that could dampen replacement cycles and new purchases, according to India Today’s coverage of the expected pricing impact on consumers. For a buyer considering an upgrade from a three-year-old device like a Samsung Galaxy S21 or an iPhone 13, a 6.9% jump in the price of comparable new models can be enough to delay the purchase by another year or push them toward refurbished or older-generation phones. I expect this to be particularly pronounced in emerging markets, where installment plans and carrier subsidies are less generous and upfront pricing remains a decisive factor.
Chip shortages due to AI demand are predicted to increase smartphone prices by 6.9% in 2026, a specific figure cited in Gigazine’s report on AI-related chip scarcity that underscores the scale of the expected price shock. When combined with higher memory and camera costs, this projected increase suggests that even mid-range devices could creep into price brackets that were previously reserved for flagships. I see this as a potential catalyst for shifts in consumer behavior, including longer device lifespans, greater interest in trade-in programs, and increased demand for budget brands that can undercut established players by using older or less advanced components.
These pricing pressures are closely linked to the forecast 2.1% decline in global smartphone shipments as input costs pile up, as quantified in an NDTV Profit shipment report on the expected global contraction. When average selling prices rise faster than incomes, particularly in regions where smartphones are the primary computing device, the result is a slowdown in both first-time adoption and replacement purchases. For the broader digital economy, that means slower growth in mobile-first services, from streaming platforms to fintech apps, which depend on a steady influx of capable new devices to expand their user bases and support more demanding features.
Pressure on manufacturers and high-end models
The expectation that the smartphone market will shrink in 2026 due to rising chip and memory costs is forcing manufacturers to reassess product roadmaps and pricing strategies, as outlined in a 9to5Google market expectations piece on the changing outlook. Brands that once prioritized aggressive feature upgrades each year may now focus more on cost optimization, software longevity, and modular design to stretch the life of existing platforms. I anticipate that some companies will lean harder on services revenue, extended software support, and ecosystem lock-in, using tools like proprietary app stores or exclusive AI features to maintain engagement even if hardware sales flatten or decline.
The smartphone industry faces cost challenges in 2026 amid memory shortages and rising prices, with particular emphasis on how these pressures affect high-end smartphones and camera components, as reported in a Digitimes analysis of premium device and camera module costs. High-end models that showcase periscope zoom lenses, large image sensors, and advanced computational photography now carry significantly higher component bills, making it harder to keep flagship prices within psychologically important thresholds like 999 dollars or 1,099 dollars. For manufacturers, this raises the risk that premium devices become niche products for enthusiasts and professionals, while mainstream buyers gravitate toward upper mid-range phones that offer “good enough” cameras and performance at more attainable prices.
Revised 2026 smartphone shipment forecasts that attribute the downturn to memory shortages and higher BoM costs are putting additional strain on margins for premium devices, according to Counterpoint Research’s assessment of how BoM inflation hits high-end models. When the most expensive components are concentrated in flagships, any cost increase disproportionately erodes profitability at the top of the lineup, where brands traditionally earn their highest margins and build their reputations. I expect this to accelerate experimentation with strategies such as splitting flagship lines into “Pro” and “Lite” variants, staggering feature rollouts over multiple years, and relying more heavily on software-based enhancements to justify premium positioning without incurring unsustainable hardware costs.
