The budget smartphone market will shrink as the reality of memory shortages continues to take hold.

Rising RAM prices amid memory shortages are putting serious pressure on the economics of low-end smartphones, according to a recent analysis published this week by global technology research firm Omdia.

“Memory costs have become a serious burden for low-end smartphones,” the report notes. “Based on the memory price trend for the coming quarters, low-end products are no longer profitable and face a high risk of weakening demand as retail prices continue to rise.”

Memory costs now account for nearly 60% of the total bill of materials for manufacturing a smartphone in the sub-$400 price range, and more than 64% for phones priced below $99, according to the research firm.

Omdia said global consumer technology brands, including popular Chinese brands such as OPPO and Xiaomi, are under pressure to increase retail prices to preserve their margins.

The RAM shortage will have a huge impact on budget-conscious consumers, the firm said. A premium phone maker can reduce build costs by using an older processor, a cheaper screen, or a different camera setup. A budget phone maker, already reliant on slim margins, has much less fat to trim.

Overall, Omdia expects the global smartphone market to decline 12% this year, largely driven by a 22% year-over-year decline in shipments of smartphones priced under $400, while shipments of phones priced above $400 are expected to grow 5.7%.

Ram

RAM costs have risen as more companies rush to buy memory chips amid the AI ​​boom.

Much of the boom driving the construction of AI data centers depends on the same broader memory supply chain that powers consumer electronics, including DRAM/RAM and NAND. This is driving up costs for electronics companies, prompting many to pass those extra costs on to consumers.

Apple recently raised the prices of many Macs and iPads by up to $300 after Tim Cook warned that the memory shortage had become too costly for the company to continue absorbing. The company has not yet increased iPhone prices this year, although many expect the starting price of the new generation of iPhone to increase when the models are introduced in the fall.

Microsoft will increase Xbox console prices by $100 to $150 starting August 1, saying memory and storage costs have increased more than 2.5 times and could rise again.

Valve surprised gaming when it revealed a starting price of $1,049 for its long-awaited living room PC, the Steam Machine. Dell and Lenovo also raised prices by 15% to 20% in December and January.

Retailers warn that more increases are also coming. Alex Baldock, chief executive of Currys, Britain’s largest electronics retailer, said shoppers should expect higher prices on smartphones and laptops later this year.