AI is killing the cheap smartphone

From the article:

In 2026, the International Data Corporation, which tracks the smartphone market, predicted that worldwide smartphone shipments would fall 13 percent, their largest single-year decline ever. The crash would be most intense in Africa and the Middle East, where smartphone shipments would fall by more than 20 percent, and would be concentrated in the cheapest end of the smartphone industry. This shock represented not a temporary blip but indeed “a structural reset of the entire market”: a huge share of the world’s population is getting priced out of smartphone ownership.

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The catch with HBM, beyond the difficulty of producing it, is that it is enormously wafer-intensive. It is not just that you are stacking a lot of dies together. Because of all the peripheral circuits and all the vertical channels, a single gigabyte of HBM consumes more than three times the wafer capacity that a gigabyte of DDR or LPDDR does. Every gigabyte of HBM produced is, in effect, three gigabytes of commodity memory not produced.

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The rational response, for the memory makers, was obvious: pump out more HBM. And so they reallocated a massive amount of capacity. In 2023, HBM accounted for 2 percent of the memory makers’ wafers; in 2024, 5 percent; in 2025, 10 percent; and by the end of 2026, the share is expected to hit 20 percent, with an additional 3 percent allocated toward high-density DDR for AI servers. And so in the space of three years HBM went from a peripheral product category to the very core of the memory industry. SK Hynix, which had been first to reach volume production of the leading-edge HBM node, saw its HBM revenue increase fourfold in 2024 alone; by the end of that year, HBM accounted for more than 40 percent of the company’s DRAM revenue, up from roughly 5 percent two years earlier.

But even this reallocation hasn’t been enough. Demand continues to outrun supply, and the memory shortage remains one of the defining features of the AI buildout. (It has, in turn, produced all sorts of workarounds, like quantization or DeepSeek’s multi-head latent attention.) So heated has the race for memory become that at the end of 2025, executives from hyperscalers like Microsoft and Google were reportedly “practically taking up permanent residence in Korea” lobbying Samsung and SK Hynix for allocation. More than 30 percent of hyperscaler capital expenditure is now going to DRAM alone.

This has been fantastic news for the memory makers. In 2025, they earned a collective $70 billion in profit; in 2026 they’re expected to earn more than double that amount. Samsung, SK Hynix, and Micron are now among the most profitable companies in the world.

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And that repricing has had a stark effect in poor countries. In India, the sub-$100 smartphone market collapsed 59 percent year-on-year in the first quarter of 2026: surging memory prices resulted in a “forced premiumization” of the Indian smartphone market. But in the poorest markets, such premiumization isn’t a possibility. In 2025, 81 percent of smartphone shipments in Africa were in the sub-$200 category: as smartphone prices surge, many African consumers will simply be priced out of phone ownership entirely.

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Even Apple, the king of the electronics world, is starting to feel the bite of memory costs. Apple traditionally enjoyed significant bargaining power with the Korean memory makers, negotiating long-term agreements to smooth prices out for years at a time; but now the memory makers are the ones with the leverage. When Apple’s latest long-term agreement expired in January 2026, the memory makers refused anything lasting longer than a quarter at a time. In February, in order to secure supply at all, Apple agreed to pay Samsung a 100 percent premium on the LPDDR5X memory destined for the iPhone.

And so the pricing pressure on Apple has grown massively over the last six months. Over the course of 2025, the 12GB LPDDR5X chips that power the iPhone 17 Pro had increased in price by 230 percent; without its long-term agreements to protect it, Apple would face the full brunt of the memory crunch. In order to cope, Apple has announced a wave of delays over the last few months. The iPhone 18 standard model has been delayed to spring 2027; the new Mac Studio was delayed from summer to fall.