Artificial Intelligence leads to significant hike in smartphone prices

Due to Artificial Intelligence (AI), the era of cheap smartphones worldwide is now nearing its end. The cost of manufacturing smartphones is rising due to the consumption of components required for AI infrastructure, resulting in fewer budget phones in the market. According to a report by Rest of World, a global shortage of memory chips has emerged due to the demand for AI data centres, which is the primary reason for the increase in smartphone production costs.

Globally, prices of existing smartphone models have increased by approximately 15% this year. Meanwhile, the price of newly launched models is about 25% higher compared to last year. This price hike is being observed differently across various regions. India is most affected in this regard, where smartphone prices have increased by 21%. Asia-Pacific has recorded a 19% increase, and the Middle East and Africa have seen an 18% rise, while the US has seen an increase of only 5%.

Evan Lem, Senior Analyst at research firm Counterpoint, states that Chinese smartphone manufacturers, who hold approximately 60% of total global smartphone shipments, have significantly reduced entry-level projects this year due to the rising cost of memory chips. These companies are now focusing more on more profitable premium devices. According to Lem, Chinese companies are choosing to reduce investment in products below $150 or $200 and are instead allocating more resources towards higher-margin phones, branding, user experience, and AI.

This impact is clearly visible in India. For example, Xiaomi has increased the price of the 128GB Redmi 15C, launched last December, from ₹12,499 ($140) to ₹16,999 ($190) in the month of June, representing a significant increase of 36%. The situation is similar in other parts of Asia. According to research firm Omdia, shipments of Oppo's sub-$100 phones in Southeast Asia have decreased by 96%, while Vivo has increased the price of its key entry-level models above $100 in most markets.

The rising prices of smartphones pose a threat of increasing digital inequality. For those who are yet to purchase their first smartphone, high prices may make it difficult to connect online. GSMA had previously estimated that by 2030, approximately 80 crore more people would use mobile internet. However, Clare Sibthorp, Head of Digital Inclusion at the group, told Rest of World that rising smartphone prices could impact this estimate and widen the digital inequality gap. She further added that as we live in an increasingly digital world, the spread of technologies like AI is creating digital divide and inequality. People will not be able to benefit from internet-enabled phones and essential services without the internet.

In 2025, more than one in four smartphones shipped globally were priced below $150, but this market is now shrinking. Chinese companies like Xiaomi, Oppo, Vivo, and Huawei built their businesses through cheap and feature-rich phones, but the economic aspects of this strategy are now changing.