Smartphone shipments below $400 to fall 22% as memory costs surge

Global smartphone shipments priced below $400 are expected to decline 22% year over year in 2026 as soaring memory prices make low-end devices increasingly difficult to sell profitably, according to Omdia.

The research firm said sharp increases in DRAM and NAND flash prices have fundamentally altered smartphone cost structures, putting the greatest pressure on budget and mid-range devices.

According to Omdia's latest forecast, the overall smartphone market is expected to decline 12% in 2026, largely because of the steep contraction in shipments of devices priced below $400.

By contrast, smartphones priced above $400 are forecast to grow 5.7% this year as vendors increasingly prioritize higher-margin products.

"Memory costs have become a serious burden for low-end smartphones," said Zaker Li, principal analyst in Omdia's consumer research team.

The analyst warned that the pressure is likely to intensify as memory prices continue rising over the coming quarters.

According to Omdia, memory now accounts for nearly 60% of the bill of materials (BOM) in smartphones priced below $400. For devices priced below $99, the share exceeds 64%.

The report said the memory cost share has nearly doubled in sub-$400 smartphones between the third quarter of 2025 and the first quarter of 2026, while memory costs have increased by more than 100% even in smartphones priced above $400.

Manufacturers have attempted to offset higher memory costs by reducing spending on components such as displays, camera sensors and radio-frequency modules, where supply remains abundant.

However, Omdia said there is limited room for further cost reductions in entry-level smartphones because they are already engineered around extremely tight margins.

As a result, vendors including Transsion, OPPO, vivo, Honor and Xiaomi have begun raising retail prices to protect already-thin profit margins.

The higher prices, however, are expected to weigh heavily on demand because buyers in the entry-level segment are particularly price-sensitive.

According to Omdia, some low-end smartphones are already becoming unprofitable, prompting manufacturers to gradually reduce their exposure to the budget market.

Instead, vendors are increasingly focusing on premium devices, where higher retail prices provide greater flexibility to absorb rising component costs.

The report noted that manufacturers can reduce costs more easily in higher-end smartphones by adjusting component choices without significantly affecting product competitiveness.

For example, some Chinese smartphone makers are replacing LTPO OLED displays with less expensive LTPS OLED panels in selected premium models, saving an estimated $3 to $5 per device.

Manufacturers are also adopting more flexible camera configurations by using smaller image sensors or fewer cameras and slowing processor upgrades by retaining previous-generation system-on-chip (SoC) platforms, which can reduce chipset costs by 30% to 40%.

Omdia said these options are largely unavailable in the budget segment, where memory has become the dominant cost component and profit margins leave little room for further optimization.

The research firm said rising memory prices are reshaping smartphone economics, forcing vendors to strike a more delicate balance between affordability, profitability and product competitiveness while accelerating the industry's shift toward higher-priced devices.