AI's Memory Chip Grab Sends Smartphone Sales Down 22%

By Amara Osei

Smartphone shipments fell 22% in the September quarter, the worst decline on record, according to market researcher IDC. The culprit is memory: chip prices have climbed 350% over the past year as AI industry players compete for supply.

The squeeze has already forced manufacturers to raise prices, cut specifications, and drop budget-focused models, said Nabila Popal, IDC's senior research director for Worldwide Devices. Chinese brands Xiaomi Corp. and Oppo, which sell lower-priced phones on thinner margins, took the worst hit among the top mobile brands. Apple and Samsung were more insulated because their portfolios lean toward higher-margin premium devices.

Why are memory prices soaring?

The same three manufacturers that make DRAM and NAND chips for smartphones — Samsung, SK Hynix, and Micron — also make the memory that AI processing requires. They stack layers of DRAM into high-bandwidth memory (HBM) chips, which deliver the data-transfer rates AI workloads demand.

AI accelerators like Nvidia's GPUs need large quantities of HBM to store model parameters and hold contextual information during problem-solving. HBM sits in the same package as the GPU, right beside the processing silicon.

That proximity to the AI boom pays. Making HBM for the AI industry is more profitable than making smartphone memory, so manufacturers have pivoted.

Who has locked up the supply?

The big AI spenders have secured the output years in advance. "The AI infrastructure and cloud service providers like Google, Meta, and Amazon that are doing these buildouts, the majority of them have secured long long-term agreements [with the memory manufacturers] all the way up to like 5 years, to 2030 or 2031, pretty much guaranteeing the output will be given to them at certain price points," Popal explains.

Those contracts explain why smartphone makers can't simply outbid their way back to supply. Memory prices are still rising, in part because the AI data center buildout is just getting underway. IDC projects worldwide spending on AI infrastructure, including servers and storage, will reach $1.21 trillion annually by 2030.

Memory manufacturers are building additional capacity, Popal said, but they're not moving fast. Inflated prices are good for business.

What does this mean for phone buyers?

Consumers will shoulder the cost. The average selling price of smartphones has already jumped sharply. "Last year it was $450," Popal told Fast Company. "This year we're expecting smartphone ASP to be $581."

That's a 29% increase in one year for the average handset. Budget models are disappearing fastest, since manufacturers have discarded them to protect margins on premium devices.

The gap between the two markets is structural, not cyclical. AI buyers have signed contracts running to 2030 or 2031 at fixed price points, while phone makers buy on shorter terms in a market where the three dominant suppliers have little incentive to expand quickly. Unless capacity growth catches up with AI demand, smartphone prices keep climbing and shipment declines could deepen — IDC says worse is yet to come.