**Global Smartphone Market Faces Steepest Decline on Record Amidst AI-Driven Memory Shortage**
The global smartphone market is bracing for its most significant downturn in history, with analysts forecasting an unprecedented contraction in 2026. The primary culprit? A persistent and deepening shortage of memory chips, exacerbated by the insatiable demand from the artificial intelligence sector. This crunch is not only driving up component costs but is also fundamentally reshaping the landscape of consumer electronics.
International Data Corporation (IDC) reports that the global PC and smartphone markets could shrink by 11% and 13%, respectively, in 2026. Adding to these dire projections, Counterpoint Research anticipates a 12% year-on-year drop in global smartphone shipments for 2026 – a decline described as the “sharpest on record.” This would push smartphone shipments to their lowest annual volumes since 2013.
The confluence of aggressive AI infrastructure investment by tech giants and the subsequent strain on memory chip inventories has created a ripple effect across the industry. Manufacturers in memory-intensive sectors, such as smartphone and PC producers, are now struggling to secure vital component supplies.
“A lot of these memory companies are asking smartphone vendors to stand in line behind the hyperscalers, which means allocation [to smartphone vendors] is deprioritized over other segments in the industry — AI in this case,” explained Tarun Pathak, Counterpoint’s research director of devices and ecosystems.
This strategic reallocation has already led to significant price increases for components like Random Access Memory (RAM). These chips are critical not only for consumer devices but also for the massive data center complexes being rapidly built by AI leaders like Amazon and Meta.
Bryan Ma, vice president of devices research at IDC, noted that while this shift in chip allocation has impacted device manufacturers for years, previous forecasts consistently underestimated the severity of the AI-fueled demand. “It’s dramatically worsened over the past few months,” Ma stated. “We actually did a forecast back in November… but in the weeks that followed, right after we published that forecast, it just got worse and worse.”
IDC had initially projected growth of around 8.3% for the global PC market and 2% for smartphones this year. However, these predictions have been revised downwards to account for the increasingly constrained chip supply. Similarly, Counterpoint observes a “structural downturn” in the smartphone market, despite a 3.8% year-on-year shipment growth in the fourth quarter of 2025, as the chip shortage’s impact has surpassed all expectations.
**Structural Shifts in Consumer Electronics**
The deepening chip crunch is expected to catalyze significant structural changes within the consumer electronics market. Counterpoint’s Pathak suggests that manufacturers will likely pass on the burden of shrinking margins to consumers, leading to fewer new users entering the market and longer replacement cycles for existing ones.
However, this challenging environment also presents opportunities. The secondary and used smartphone markets are poised for growth as an increasing number of consumers are priced out of new devices due to rising memory costs.
Both research firms anticipate that Original Equipment Manufacturers (OEMs) will increasingly prioritize sales of mid- to higher-end models, with some potentially exiting the lower-end market altogether. Memory costs represent a substantially larger portion of the price for entry-level devices, making it “difficult for vendors to stay profitable while keeping prices down,” according to Ma.
Larger, established players are expected to weather the current uncertainty more effectively. Companies such as Apple and Samsung benefit from “stronger supply chain integration, higher pricing power, and continued premiumization,” as detailed in a Counterpoint report. “This is a scale game… when you look at the vendors that tend to have a relative advantage, it’s the bigger guys,” Ma elaborated.
Beyond economies of scale, premium models from manufacturers like Apple and Samsung command a greater share even in the used market, attributed to their strong “aspirational pull,” Pathak observed.
The current forecasts paint a somber picture for the consumer devices market in the near term, with a potential inflection point not expected until late 2027, contingent on “additional memory capacity [coming] online.” IDC is looking to increased memory capacity buildouts and a potential influx of smaller memory suppliers from China as possible catalysts for relief, but Ma sees little immediate reassurance otherwise.
Despite the headwinds, Pathak remains cautiously optimistic: “The smartphone market has always been resilient… eventually, people will need a phone.”
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