Global smartphone shipments fell 11% in the second quarter compared to a year earlier, marking the weakest Q2 performance since 2013, according to data from Counterpoint Research cited by Reuters. The decline reflects a growing squeeze on memory chip supplies as AI data centers compete with phone makers for the same components.
Memory chips are a critical part of any smartphone, used for both storage and performance. But chipmakers are increasingly prioritizing sales to AI data centers, where they can charge higher prices for the same memory capacity. That dynamic has pushed up the cost of memory for phone manufacturers, particularly in the entry-level and mid-range segments where margins are already thin.
“Brands in those segments have less room to raise prices without losing buyers, so they either accept thinner margins or cut back on shipments,” Counterpoint noted. The result: fewer phones shipped, especially at the lower end of the market.
Apple Gains Ground by Holding Prices Steady
While the overall market shrank, Apple managed to increase its share. The company kept iPhone prices stable during the quarter, a strategy that helped it capture a larger slice of a smaller pie. Apple’s ability to hold prices—rather than discount—stands in contrast to many Android rivals, who faced pressure to cut prices or reduce production as memory costs rose.
Apple’s premium positioning gives it more flexibility. Its customers are less price-sensitive, and the company’s supply chain relationships may also help it secure memory chips at more favorable terms. The result: Apple’s share of global smartphone shipments rose even as total volumes fell.
The broader context is a memory chip market that has been reshaped by the AI boom. Companies like SK Hynix and Samsung have seen soaring demand from data centers running AI workloads, which require vast amounts of high-bandwidth memory. That has diverted production capacity away from the type of memory used in smartphones, known as DRAM and NAND flash.
Earlier this year, SK Hynix’s CEO warned that AI-driven memory shortages could peak in 2027, suggesting the squeeze on smartphone makers may persist for years. Meanwhile, the U.S. government has been pressing Samsung and SK Hynix to build AI memory chip plants in America, a sign of how strategically important these components have become.
What It Means for Everyday Investors
For investors, the smartphone slump is a reminder that the AI boom has ripple effects far beyond data centers. The same chips that power ChatGPT and other AI models are also essential to the phones in our pockets. When AI demand surges, it can crowd out other uses—and that can hurt companies that depend on consumer electronics.
Apple’s relative resilience shows the value of pricing power and brand loyalty in a supply-constrained environment. Investors may want to watch how other phone makers—especially those focused on lower-priced devices—navigate the memory cost headwind. Companies like Xiaomi, Oppo, and Vivo are likely to feel more pressure than Apple or Samsung’s high-end Galaxy line.
On the chip side, memory makers like SK Hynix and Samsung are benefiting from AI demand, but they also face pressure to invest heavily in new factories. TSMC’s record quarter showed that AI demand is still driving growth across the semiconductor industry, but the smartphone slowdown is a reminder that not all chip demand is created equal.
Looking ahead, investors should keep an eye on quarterly earnings from major phone makers and chip suppliers. If memory prices continue to rise, smartphone shipments could stay weak through the rest of the year. But if AI demand moderates or memory production catches up, the phone market could rebound—especially as consumers in emerging markets upgrade from older devices.
The key takeaway: the smartphone industry is no longer just about consumer demand. It’s now competing with the AI revolution for the same essential components, and that competition is reshaping who wins and who loses.
