According to CINNO Research, China's smartphone market sales reached 70.68 million units in the first quarter, a year-on-year decrease of 6% and a quarter-on-quarter decline of 5%. The primary factors behind this downturn are a shortage of memory chips and price increases of 10% to 30% for new models, which have extended the consumer replacement cycle to over 36 months. Some essential demand was concentrated ahead of the March price hike, creating a negative cycle of "demand pull-forward and sales overdraft." Sales in the domestic market are expected to continue declining from the second to the fourth quarter.
First, the sharp rise in memory chip costs is the core trigger for the market tightening. The surge in demand for High Bandwidth Memory (HBM) driven by generative AI has led major manufacturers like Samsung and SK Hynix to allocate over 70% of their advanced capacity to HBM, causing shortages in consumer-grade DRAM and NAND. This supply-demand imbalance has directly triggered sharp price increases. Data shows that after the price hike, the cost for mainstream configurations like 8GB+128GB storage combinations increased by up to 290%, with other specifications seeing increases exceeding 259%. Notably, from July 2025 to May 2026, the spot price of DDR4 16Gb (2Gx8) 2666 Mbps experienced a roller-coaster fluctuation, soaring from $8.7 in July 2025 to around $80 in March 2026, an increase of over 800%. Although it dropped back to $61–$63 in May, it remains at a historically high level. This price surge stems from supply shortages due to AI capacity allocation and is further exacerbated by risks of production cuts and shutdowns amid Middle Eastern tensions, intensifying panic stockpiling. The slight price decline in May is mainly due to concentrated clearance of previously stocked inventory and market skepticism about a complete halt in DDR4 production. However, the core supply-demand imbalance is expected to persist until the first half of 2027.
Second, the impact of rising storage costs varies significantly across different price segments, with the low-end market bearing the heaviest burden and the high-end market showing stronger resilience. Low-end smartphones (priced below 2,000 yuan) operate on thin profit margins, and the surge in storage costs has eroded all profits, forcing manufacturers to cut production or pass on costs, accelerating the exit of budget phones from the market. Mid-range smartphones (2,000–4,000 yuan) face significant profit margin compression, though less severe than the low-end segment. While not incurring losses, growth has stalled. High-end, ultra-high-end, and foldable phones (above 4,000 yuan) are relatively less affected due to the lower proportion of storage in their cost structure, lower price sensitivity among users, and stronger brand premium capabilities.
Third, the market structure is increasingly polarized, with a clear "Matthew effect" where the strong grow stronger and the weak face greater pressure. Huawei and Apple (AAPL.US) have demonstrated strong risk resilience, leveraging robust supply chain control, ample inventory, and premium market capabilities to secure the top two positions. In the first quarter, their sales reached 12.47 million and 11.57 million units, respectively, collectively accounting for 34% of the market share. In contrast, mainstream Android brands like vivo, OPPO, and Honor, whose primary markets are concentrated in price-sensitive low-end and mid-range segments, are more severely impacted by rising storage costs. They face significant pressure on sales and market share, forcing them to balance component costs, gross margins, and shipment targets.
Fourth, the price cuts during the "618" shopping festival represent a short-term survival strategy for manufacturers to "exchange price for volume." However, the structural rise in memory costs is irreversible. The continuous increase in upstream raw material costs, such as memory and core components, has directly raised the hardware costs of smartphones, with no fundamental reversal expected in the short term. The upcoming "618" e-commerce promotion, combined with government subsidies and platform discounts, will create a temporary low point for smartphone prices this year. Manufacturers' promotional activities, supported by government subsidies and platforms' efforts to boost sales, have temporarily offset cost pressures, leading to a short-term price decline. However, the underlying structural cost increases remain, making this price reduction trend unsustainable in the long run.
Fifth, the industry is entering a period of deep adjustment, with premiumization, AI, and diversification representing future growth opportunities. The sharp rise in memory prices has structurally impacted smartphone BOM costs, posing significant risks of short-term losses and market share declines for small and medium-sized manufacturers and some mainstream Android brands that rely heavily on entry-level models to capture market share. The industry is accelerating consolidation, with manufacturers lacking supply chain bargaining power, insufficient technological innovation, and weak positioning in the high-end market gradually being marginalized or even forced out. Looking ahead, amid the unresolved supply-demand imbalance in memory chips, the smartphone industry will focus on implementing AI large models while expanding into the high-end and ultra-high-end markets. To cope with cost pressures from memory price hikes, manufacturers are enhancing product value through measures like upgrading battery capacity, optimizing design, and improving material configurations to boost consumer purchase intent. Additionally, they are accelerating expansion into other smart device categories to build a multi-device ecosystem, diversifying their business to hedge against cost fluctuations in a single market, thereby stabilizing their market position and seizing the next wave of industry growth opportunities.
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