AI's Memory Thirst Jolts India's Smartphone Market

Months after analysts cautioned that the surge in AI-driven demand for memory chips would impact consumer electronics, India is now providing compelling evidence of this disruption, as escalating handset prices actively reshape its smartphone market.

The memory chips at the heart of this issue—encompassing both RAM and storage components—are precisely those required in vast quantities by technology giants for constructing AI data centers. Manufacturers such as Samsung, SK Hynix, and Micron have strategically reallocated production capacity towards high-bandwidth memory (HBM), specialized chips essential for AI accelerators. This shift is driven by the significantly higher profitability per wafer of HBM compared to the standard memory used in everyday devices like phones and laptops, resulting in reduced capacity and increased costs for consumer electronics.

India, which stands as the world's second-largest smartphone market by shipments after China, experienced a 10% year-over-year decline in smartphone shipments during the April-June quarter. This data, reported by market research firm Counterpoint Research, marks the steepest June-quarter fall in six years, a direct consequence of higher memory costs contributing to elevated handset prices.

The repercussions have been more pronounced in India compared to China, where smartphone shipments saw only a 2% dip in Q2, according to Counterpoint. India's market has been hit harder because approximately 60% of its smartphone sales are concentrated in the sub-₹20,000 (under $210) price bracket, where "higher memory costs have had the biggest impact on prices," Tarun Pathak, the firm’s vice president of research, conveyed to TechCrunch.

For several years, India has served as a pivotal market for global smartphone brands. This South Asian nation, home to over 1.4 billion people and more than 700 million smartphone users, has emerged as a key indicator for consumer demand in price-sensitive regions. Consequently, shifts in Indian buying patterns are closely monitored by device manufacturers, chip suppliers, and investors tracking the overall health of the AI supply chain.

Pathak informed TechCrunch that while consumers are not expected to abandon smartphones entirely, many are likely to defer upgrades, extending replacement cycles from approximately 3.5 years to around four years. Meanwhile, premium brands like Apple and Samsung appear better insulated from this market slowdown.

This uneven market impact is already leading to a realignment of competition among smartphone manufacturers. Samsung was the sole major smartphone brand to report shipment growth in India during Q2, with volumes increasing by 2% year-over-year, as per Counterpoint. Apple, in contrast, saw its shipments decline by 3%—though this reduction was primarily attributed to supply constraints and inventory shortages that limited the number of iPhones Apple could deliver.

Consumers purchasing higher-end smartphones have demonstrated less sensitivity to price increases, largely because financing options make expensive devices more accessible, Prachir Singh, a senior analyst at Counterpoint Research, explained to TechCrunch.

The most acute challenges have been felt at the lower end of the market. Shipments in the sub-₹15,000 (under $150) segment plummeted by 45% from the previous year, Counterpoint reported. Given the significant exposure of Chinese brands to entry- and mid-tier smartphones, their combined market share fell to its lowest Q2 level since 2020.

These tougher economic conditions are also instigating strategic adjustments. This week, Chinese smartphone brand OnePlus announced its decision to cease launching new products in Europe and North America, while maintaining its operations in India, following what it described as a thorough assessment. Counterpoint data, shared with TechCrunch, revealed that China constituted 74% of OnePlus’ global smartphone shipments to distributors and retailers in Q1, an increase from 59% a year prior, while India’s share decreased from 30% to 19%.

Essentially, OnePlus is withdrawing to markets where it can sustain profitability, ceding ground elsewhere—a trend that is expected to be replicated by other budget-focused brands as profit margins continue to tighten.

Indeed, Pathak underscored to TechCrunch that operating multiple sub-brands is only viable if each generates sufficient volume to cover shared costs, a calculation that becomes unsustainable when margins become this thin. He stated, “Sub-brands normally have overlaps and shared resources, and you need a minimum base to justify the cut-throat margins. Profitability is the key to deciding market operations.”

This pressure on brands is directly impacting consumers. Kiranjeet Kaur, associate research director for mobile phones research at IDC, noted that the Indian smartphone market is transitioning from volume-led growth to value growth—meaning fewer phones are sold overall, but each unit generates greater revenue—as elevated component costs render lower-priced smartphones increasingly uneconomical.

The increased component costs are already being passed on to consumers. Smartphone prices in India have risen by between 4% and 68%, depending on the specific model, Pathak indicated. As prices climb, consumers are either opting for higher-priced devices, delaying their upgrades, or exploring the secondhand market.

Meanwhile, financing has become “central to affordability,” Kaur told TechCrunch. She further mentioned that brands and retailers are proactively building inventory in anticipation of the festive season, aiming to secure lower costs before further increases in component prices.

IDC also projects a double-digit decline in India’s smartphone shipments for Q2, a steeper drop than the 4.1% decline in the first quarter and the 5.3% fall in the preceding quarter, Kaur stated, though she noted that the firm’s estimates were not yet finalized.

Kaur informed TechCrunch that memory shortages and elevated smartphone prices are likely to persist until at least the end of 2027. However, she anticipates that the pace of price increases should moderate as consumers gradually acclimate to higher prices becoming the new norm.

“For Indian consumers, it is a double whammy as the weaker currency makes imports costlier, which has added to margin pressures for the market players, and they are passing on the cost to the consumer,” Kaur explained.