A "once-in-a-decade" surge in memory prices is expected to significantly increase smartphone manufacturing costs.
According to industry reports, UBS Group AG's latest global smartphone survey released on December 8 indicates that memory supply is entering a rare shortage cycle due to AI-driven demand pressures. The sharp rise in memory prices will disproportionately impact smartphone manufacturers, forcing them to make difficult choices between sacrificing profits, raising prices, or reducing specifications.
This situation poses a serious challenge to the smartphone industry in 2026, particularly for mid-to-low-end segments with already thin profit margins. In contrast, leading brands with scale and premium product portfolios are better positioned, leveraging stronger bargaining power and higher margins to absorb cost pressures.
**Memory Cost Surge: The Biggest Headwind for Smartphone Makers in 2026** UBS's industry survey reveals that amid persistent AI demand squeezing supply, the memory sector is facing its most severe shortage in a decade. The report predicts that DDR and NAND contract price increases will continue at least until Q3 or Q4 2026.
This creates a dual challenge for smartphone OEMs: securing sufficient supply while managing escalating costs.
- **Supply Risks**: Memory buyers are scrambling to lock in supply, but even long-term agreements (LTAs) may not fully guarantee volumes or pricing. Smaller OEMs risk shipment declines if they fail to secure adequate memory. - **Profit Pressure**: Rising memory costs will directly inflate bill-of-materials (BOM) expenses, squeezing margins. Manufacturers must choose between absorbing costs or passing them to consumers—the latter potentially dampening demand.
**High-End Market "Resilient," Mid-to-Low-End Market "Under Siege"** For flagship and premium smartphones, memory price impacts remain relatively manageable.
UBS estimates that by Q4 2026, memory costs will account for ~14% of flagship BOM (up from 11% in Q4 2025 and 8% in Q4 2024). Per-device memory costs will jump 41% YoY to $73, adding ~$21 per unit. However, this represents just ~2% of average selling prices (ASP), allowing dominant brands with pricing power and scale to mitigate the hit.
In contrast, the mid-to-low-end segment faces a starker reality. Memory costs are projected to spike to 34% of BOM by Q4 2026 (vs. 27% in Q4 2025), with a $16 per-device cost increase—equivalent to ~6% of ASP. This disproportionate squeeze leaves vendors with fewer options, likely forcing aggressive price hikes or spec reductions.
**Price Hikes or "De-Specing"? A No-Win Dilemma** Manufacturers, especially those focused on budget segments, confront three unappealing choices: absorb costs, cut specs (e.g., freezing memory upgrades), or raise prices.
UBS notes none are ideal: - Full cost absorption would erode already slim margins. - Even with spec cuts, mid-range memory costs would still rise 26% YoY. - To fully offset memory inflation, budget phone ASPs would need a 17% hike (vs. 7% for flagships)—a demand-crushing move in price-sensitive markets.
**Market Shake-Up Looms as Growth Risks Mount** Divergent coping abilities may reshape the competitive landscape, particularly in budget segments.
UBS highlights Apple and Samsung’s advantage, given their 89% combined share of the $800+ premium market (Jan 2023–Oct 2025). Their scale and pricing power provide cost-absorption flexibility.
Smaller OEMs and volume-driven budget brands, however, face existential pressures. Weak supply chain leverage and thin margins leave them vulnerable to market share losses if forced into steep price increases.
UBS concludes these dynamics could accelerate share shifts in emerging markets, while price inflation casts doubt on a 2026 smartphone recovery. The firm’s conservative 1.0% YoY shipment growth forecast now faces "modest downside risks."
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