AI vs. Budget Phones: If you are planning to buy a new smartphone or are waiting for prices to drop next year, then there is a shocking news for you. Smartphone prices around the world have suddenly started rising and the reason behind this is npt a factory shutdown or a supply issue. The real reason behind this is the increasing demand for artificial intelligence.
Tech companies are putting all their efforts into manufacturing special memory chips used in AI data centers. As a result, there is a severe shortage of the memory chips (DRAM and NAND) used in everyday smartphones. Its direct impact is being felt on India’s budget smartphone market.
Why smartphone costs are rising rapidly
Memory chips are the most critical part of a smartphone. Where previously the chips share in the total cost of a phone was only 10 to 15 percent, it has now increased to reach 30 to 40 percent. In cheap phones worth 10 thousands more than half of the cost is now coming from chips alone.
Big companies' focus on AI
Giants companies like Samsung and Micron are focusing their attention on making AI chips, due to which there is now a shortage of memory for phones.
Impact on brands like Xiaomi, Vivo, and Oppo
The market share of Chinese brands in India has dropped to 67–68%, which is the lowest level in the last eight years. Brands like Xiaomi and Redmi have raised the prices of their popular models by up to ₹4,000 and have begun reducing specifications.
Indian brands got an opportunity
Indian brands have benefited from Chinese companies stepping back from the budget segment. The market share of Indian brands like Lava and Ai+ has risen to 7 percent. The new brand Ai+ has emerged as the fastest-growing player, witnessing a surge in sales of over 300 percent. Although Indian companies are also struggling with the problem of expensive chips, they are managing to survive in the market by making phones with lower specifications.
How long will this problem persist
According to Dell and Micron, the chip shortage will become even more severe by 2027. It takes about 4 years to set up new chip manufacturing factories. In such a sitution, there is no expectation of getting adequate supply before 2029 or 2030. Even if the supply situation improves, it is highly unlikely that companies will lower the prices of their phones.
