Sub-$400 smartphones to decline by 22% as memory costs soar

The global budget smartphone sector is facing a severe crisis as surging memory prices force manufacturers to scale back production, according to new research from analyst firm Omdia.

Smartphone models priced below $400 are projected to record a 22% decline in shipments this year, as the rising cost of DRAM and NAND components makes low-end devices increasingly unprofitable.

The cost structure for mobile devices has undergone a dramatic transformation over the past year. In the first quarter of 2026, memory costs accounted for nearly 60% of the total bill of materials (BOM) for smartphones priced under $400. For the ultra-budget segment – devices priced below $99 – this figure surged past 64%.

“Memory costs have become a serious burden for mid-to-low-end smartphones,” said Zaker Li, Principal Analyst at Omdia. “The situation will worsen as memory prices continue to rise in the coming quarters.”

Unlike premium models, where manufacturers have more “wiggle room” to offset costs by optimising displays, camera modules, or processors, budget devices are built on extremely tight margins. With little room to cut costs elsewhere, vendors including Transsion, OPPO, vivo, Honor, and Xiaomi have been forced to raise retail prices to maintain thin profits.

However, these price hikes are proving counterproductive, as budget-conscious consumers are highly sensitive to cost, leading to a significant drop in demand.

Premium sector grows

While the sub-$400 market is shrinking, the premium sector – smartphones priced above $400 – remains resilient, with shipments expected to grow by 5.7% in 2026.

Vendors are proactively shifting their focus to these higher-end segments, where they can manage component costs more effectively. For premium devices, the memory cost share decreases as the retail price rises, and vendors have more flexibility to use older-generation chipsets or alternative display technologies to preserve margins without alienating the less price-sensitive high-end consumer base.

Overall, Omdia forecasts that the broader global smartphone market will contract by 12% in 2026. The shift marks a definitive end to the era of cheap, abundant memory for consumer devices, as manufacturers prioritise supply for high-margin AI data centres and premium hardware.

Quarterly Smartphone Technology Trends – 1Q26 Analysis Premium.