The budget smartphone market is facing increasing pressure amid the ongoing memory chip shortage, as analysts warn that rising costs of key components could push companies to raise prices or cut production of low-cost devices, affecting low-income consumers.

According to a report from tech research firm Omdia, the sharp rise in RAM prices has become a major burden for budget phone manufacturers, with some low-cost models losing their economic viability as profit margins shrink.

The report noted that if memory prices continue to rise over the next two quarters, demand for budget phones could decline as companies are forced to increase retail prices to offset higher production costs.

According to Omdia, memory components currently account for about 60% of the total material cost for phones priced under $400, rising to over 64% for devices under $99.

The report explained that low-cost phone manufacturers face a greater challenge than high-end makers, as premium segments have more flexibility to cut costs by using cheaper processors, screens, or cameras, while budget phones operate on thin profit margins, limiting their ability to absorb rising component costs.

It added that companies like Oppo and Xiaomi are under increasing pressure to reprice their products to maintain profitability, as memory chip prices continue to rise.

Expected decline in phone market

Omdia expects global smartphone shipments to decline by 12% this year, driven by a 22% year-on-year drop in shipments of devices under $400, compared with an expected 5.7% growth in shipments of phones over $400.

The report believes the crisis could widen the gap between budget and higher-priced phones, as demand for premium models remains strong despite rising costs.

AI boom intensifies pressures

According to Business Insider, a large part of the memory crisis stems from the growing demand for chips used in AI data centers, which rely on the same supply chains that serve consumer electronics companies.

This competition has driven up memory chip prices, prompting several companies to pass some of these costs on to consumers by raising product prices.

In this context, Apple raised prices on several Mac and iPad models by up to $300, after CEO Tim Cook noted that memory costs have become too high for the company to absorb. Expectations are also growing that the next generation of iPhones will see price increases upon launch.

Price increases extend to gaming consoles and PCs

The wave of price hikes has spread to other tech companies, with Microsoft announcing plans to raise Xbox prices by $100 to $150 starting next August, citing that memory and storage costs have more than doubled.

Valve also revealed a starting price of $1,049 for its new Steam Machine, while Dell and Lenovo raised prices on several computer models by 15% to 20% over the past months.

In contrast, retailers expect the wave of price increases to continue in the coming period, as pressures on global supply chains persist, which could make phones and electronic devices less competitive in the budget segment in the coming months.