Months after analysts warned that AI-driven demand for memory chips would spread to consumer electronics, India is providing the strongest evidence yet that disruption has arrived, with rising mobile phone prices reshaping the smartphone market.

The memory chips in question (RAM and storage components) are the same ones that tech giants need in bulk to build AI data centers. Manufacturers such as Samsung, SK Hynix and Micron have been shifting production capacity toward high-bandwidth memory, the specialized chips used in AI accelerators, because they are much more profitable per wafer than the standard memory used in phones and laptops, leaving less capacity and increasing costs for everyday consumer electronics.

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 drop in the June quarter in six years, as higher memory costs pushed up phone prices.

The impact has been more pronounced in India than in China, where smartphone shipments fell just 2% in the second quarter, according to Counterpoint. India has been hit hardest because about 60% of its smartphone market is concentrated in the sub-Rs 20,000 (less than $210) segment, where higher memory costs have had the biggest impact on prices, Tarun Pathak, the company’s vice president of research, told TechCrunch.

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 more than 700 million smartphone users, has become a bellwether for consumer demand in price-sensitive markets, making changes in purchasing patterns closely watched by device makers, chip suppliers and investors tracking the broader health of the AI ​​supply chain.

Pathak told TechCrunch that consumers are unlikely to abandon smartphones entirely. However, many of them are expected to delay upgrades, extending replacement cycles to around four years from about 3.5 years previously, while premium brands like Apple and Samsung remain better insulated from the slowdown.

The disparate impact is already reshaping competition among smartphone makers. Samsung was the only major smartphone brand to record shipment growth in India in the second quarter, with volumes up 2% year-on-year, according to Counterpoint. Apple, by contrast, saw its shipments fall 3%, although that drop largely reflected supply constraints and inventory shortages that limited the number of iPhones Apple could deliver.

Consumers who buy high-end smartphones have proven to be less sensitive to price increases, and financing makes expensive devices more affordable, Prachir Singh, senior analyst at Counterpoint Research, told TechCrunch.

The pain has been most acute at the lower end of the market. Shipments in the sub-₹15,000 (less than $150) segment fell 45% from a year earlier, Counterpoint said. With Chinese brands heavily exposed to entry- and mid-level smartphones, their combined market share fell to its lowest level for the second calendar quarter since 2020.

The tougher economy is also prompting strategic changes. This week, Chinese smartphone brand OnePlus said it would stop launching new products in Europe and North America, while maintaining its business in India, after what it described as careful evaluation. Counterpoint data shared with TechCrunch showed that China accounted for 74% of OnePlus’ global smartphone shipments to distributors and retailers in the first quarter, up from 59% a year earlier, while India’s share fell from 30% to 19%.

In other words, OnePlus is retreating into markets where it can still make profits and give up ground elsewhere, a pattern that will likely be repeated across other budget-focused brands as margins tighten.

In fact, Pathak told TechCrunch that running multiple sub-brands only makes sense if each sells enough volume to cover shared costs, and that the math stops working once the margins become so thin. “Sub-brands typically have overlaps and shared resources, and a minimum basis is needed to justify cut-throat margins. Profitability is the key to deciding market operations,” he said.

Consumers feel the pressure

That pressure on brands is coming directly to the people who buy their phones. Kiranjeet Kaur, associate director of mobile phone research at IDC, said the Indian smartphone market is shifting from volume-driven growth to value growth – meaning fewer phones are sold overall, but each one generates more revenue – as higher component costs make lower-priced smartphones increasingly uneconomical.

Higher component costs are already trickling down to consumers. Smartphone prices in India have increased between 4% and 68%, depending on the model, Pathak said, and as prices increase, consumers are moving towards higher-priced devices, delaying upgrades or turning to the secondhand market.

Meanwhile, financing has become “central to affordability,” Kaur told TechCrunch. He added that brands and retailers were also stockpiling inventories ahead of the holiday season to ensure lower costs ahead of further increases in component prices.

IDC also expects India’s smartphone shipments to decline by double digits in the second quarter, a steeper drop than the 4.1% drop in the first quarter and the 5.3% drop in the previous quarter, Kaur said. However, he noted that the company’s estimates were not yet finalized.

Kaur told TechCrunch that memory shortages and high smartphone prices are 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.

“For Indian consumers, it is a double whammy as the weaker currency makes imports more expensive, which has increased margin pressures for market players, and they are passing the cost on to the consumer,” Kaur said.