The rapid expansion of artificial intelligence infrastructure is sending shockwaves through the global semiconductor industry, and its most visible impact is now playing out in India's smartphone market. Analysts had warned for months that the AI-driven hunger for high-bandwidth memory (HBM) would crowd out production of standard memory chips used in phones, laptops, and other consumer electronics. That warning has materialized, reshaping India's handset landscape faster than many expected.
Memory components—both DRAM and NAND flash storage—are the same chips that tech giants such as Google, Microsoft, and Amazon buy in massive quantities to equip their AI data centers. Manufacturers like Samsung, SK Hynix, and Micron have responded by shifting significant production capacity toward HBM, which commands much higher margins per wafer than the commodity memory chips that power everyday devices. This reallocation has reduced the supply of standard memory, driving up costs for smartphone makers just as they prepare for the traditional buying season.
India, the world's second-largest smartphone market by shipments after China, provides the strongest evidence yet of the disruption. According to market research firm Counterpoint, smartphone shipments in the April-June quarter of 2026 fell 10% compared to the same period last year. This marks the steepest June-quarter decline in six years, reflecting how higher memory costs have pushed up handset prices and dampened consumer demand.
The impact in India has been more pronounced than in China, where second-quarter shipments declined only 2%. The difference lies in the structure of the Indian market. Approximately 60% of all smartphones sold in the country fall into the sub-₹20,000 (under $210) price bracket, which is extremely price-sensitive. Even a modest increase in component costs translates into a noticeable price hike at the point of sale. In contrast, China's market has a larger share of premium devices, where consumers are more tolerant of price increases.
Tarun Pathak, vice president of research at Counterpoint, noted that higher memory costs have forced brands to raise prices across the board—by anywhere from 4% to 68% depending on the model. The steepest increases have hit entry-level phones, where memory represents a larger portion of the total bill of materials. As a result, many consumers in India are either postponing their upgrade or switching to the secondhand market. Pathak estimates that the average replacement cycle in India has stretched from about 3.5 years to roughly four years.
The ripple effects are already reshaping competition among handset makers. Samsung was the only major brand to post shipment growth in India during the second quarter, with volumes rising 2% year-over-year. Apple, by contrast, saw a 3% decline—though analysts attribute that more to supply constraints and inventory shortages than to demand weakness. Premium brands like Apple and Samsung are better insulated from the memory crunch because their higher average selling prices leave more breathing room to absorb component cost increases or pass them on without losing customers.
At the other end of the market, the pain is acute. Shipments of smartphones priced under ₹15,000 (about $150) fell 45% from the same quarter a year ago, according to Counterpoint. Chinese brands, which have long dominated the budget and mid-tier segments, saw their combined market share in India drop to its lowest level for a second calendar quarter since 2020. Xiaomi, Realme, Vivo, and Oppo have all been forced to adjust pricing and marketing strategies as margins tighten.
The tougher economics are prompting strategic shifts. This week, Chinese smartphone brand OnePlus announced it would stop launching new products in Europe and North America, while maintaining its India business, following what it called a careful assessment of market conditions. Counterpoint data showed that in the first quarter of 2026, China accounted for 74% of OnePlus's global smartphone shipments to distributors and retailers, up from 59% a year earlier. India's share fell to 19% from 30%. The move underscores a broader trend: budget-focused brands are retreating to markets where they can still turn a profit, ceding ground elsewhere as margins come under severe pressure.
According to Pathak, running multiple sub-brands in the same market only makes sense if each sells enough volume to cover shared costs. Once margins become this thin, the math stops working. "Sub-brands normally have overlaps and shared resources, and you need a minimum base to justify the cut-throat margins. Profitability is the key to deciding market operations," he said.
Consumers feel the squeeze
The pressure on brands is trickling straight down to consumers. Kiranjeet Kaur, associate research director for mobile phones research at IDC, described the Indian smartphone market as shifting from volume-led growth to value growth—meaning overall shipments are declining, but revenue per device is rising. This transformation is being driven by higher component costs, which make low-priced smartphones increasingly uneconomical to produce and sell.
Financing has become central to affordability, Kaur noted. Brands and retailers are offering installment plans and building inventory ahead of the festive season to lock in lower component costs before further price increases take effect. The Reserve Bank of India's decision to keep interest rates steady has helped keep financing accessible, but the weaker rupee is adding another layer of cost pressure. The Indian currency has depreciated by nearly 5% against the U.S. dollar over the past year, making imports of memory chips and other components more expensive.
IDC expects India's smartphone shipments to decline by double digits in the second quarter as a whole, which would be a steeper fall than the 4.1% decline recorded in the first quarter of 2026 and the 5.3% drop in the previous quarter. The firm's estimates are not yet finalized, Kaur said, but the trend is clear.
Looking ahead, analysts expect memory shortages and elevated smartphone prices to persist until at least the end of 2027. However, 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 costlier, which has added to margin pressures for the market players, and they are passing on the cost to the consumer," Kaur said.
The AI-driven memory crunch is not just a temporary supply shock—it represents a structural shift in how semiconductor capacity is allocated. As long as the world's largest technology companies continue to pour billions into AI infrastructure, the demand for HBM will remain strong, leaving limited capacity for standard memory. This dynamic will keep cost pressure on smartphone makers and force them to rethink their product portfolios, pricing strategies, and geographic focus. India, with its price-sensitive billions and rapid digital adoption, will be the key test case for whether the industry can adapt without leaving a huge portion of potential users behind.
Source: TechCrunch News