Global smartphone shipments fell 20% from a year earlier in the third quarter, marking the weakest July-to-September period since 2012, according to estimates from Counterpoint Research cited by Reuters. The decline is not just about consumers holding back—it's also a story of rising costs tied to the artificial intelligence boom.
Memory chips, a key component in every phone, have become both pricier and harder to source. AI data-center buildouts are soaking up a large share of memory supply, leaving phone makers to compete for what's left. That squeeze is pushing up the cost of building each device, a figure known in the industry as the "bill of materials."
Why manufacturers are shipping fewer phones
When component costs rise, phone makers face a choice: absorb the hit to their profit margins, raise prices, or cut back on the number of devices they produce. According to Counterpoint, many are choosing a combination of the latter two. By shipping fewer units, they can keep supply tight and protect pricing power. At the same time, they are steering buyers toward higher-end models, where a price increase is easier to absorb than in the fiercely competitive budget segment.
This dynamic is reshaping the market. Consumers are already holding onto their phones longer, and the analyst notes that refurbished devices are getting more attention as a cost-effective alternative. When new phones get more expensive, "keep it longer" or "buy used" becomes a mainstream path rather than a niche choice.
Big brands hold their ground
In this squeeze, the biggest names have fared best. Samsung retained the top spot with a 23% market share, while Apple rose to 22%. Smaller players—including OPPO, vivo, and Xiaomi—saw sharper shipment declines as they pulled back from the lowest-price segments, where rising component costs make it hardest to turn a profit.
The pattern is a familiar one in the tech industry: when input costs spike, scale becomes a bigger advantage. Larger manufacturers have more negotiating power with suppliers and more flexibility to shift their product mix toward premium devices. Smaller brands, especially those that rely on volume in emerging markets, are more exposed.
What it means for investors
For everyday investors, the key takeaway is that memory chips are quietly reshaping what "affordable" phones look like. If memory supply stays tight because AI data centers are absorbing so much of it, the pressure will continue to show up in the price and availability of new handsets.
This has implications beyond the phone makers themselves. Companies that supply memory chips—such as Samsung and SK Hynix—stand to benefit from higher prices, even as phone manufacturers feel the pinch. Investors in the broader tech supply chain should watch how long the AI-driven demand for memory lasts, as it could keep component costs elevated for some time.
For those holding shares in phone makers, the picture is more mixed. The largest players are managing to protect their market share and, presumably, their margins, but the overall market is shrinking. That could weigh on revenue growth even for the winners. Smaller players may face more pain, as they are forced to retreat from the entry-level segment where they once competed on price.
The trend also reinforces a broader theme in the tech sector: the AI boom is having ripple effects far beyond the data center. From rising jet fuel costs to input cost pressures in consumer staples, companies across industries are grappling with higher input prices. The smartphone market is just the latest example.
What to watch next
Investors will be watching whether memory chip prices continue to climb, and whether phone makers can pass those costs on to consumers without further denting demand. The upcoming holiday quarter will be a key test: if shoppers balk at higher prices, the decline in shipments could accelerate. If they accept them, the industry may find a new equilibrium—albeit with fewer budget options and a stronger tilt toward premium devices.
For now, the message from the data is clear: the era of ever-cheaper smartphones may be on hold, and the AI boom is a big reason why.
