The smartphone market is expected to shrink in 2026 due to rising chip, memory costs

Counterpoint Research forecasts the global smartphone market will shrink about 2.1% in 2026 as rising component costs driven by AI-related chip and memory demand push up bills of materials—low-end phone costs have risen 20–30% year-to-date and memory could climb another 40% through Q2 2026—leading to BOMs 8–15% above current elevated levels and average selling prices rising an estimated 6.9%. The firm says low-end models will be hit hardest, making devices more expensive and contracting unit demand, while premium players Apple and Samsung are best positioned to pass on costs (about a 2% shipment decline expected) and Chinese OEMs such as Honor, Vivo, Oppo and Xiaomi face larger share losses (Honor over 3% decline) with some previously projected growth now reversed.

Analysis

Counterpoint Research forecasts the global smartphone market will contract about 2.1% in 2026, attributing the decline chiefly to rising component costs driven by AI-related chip and memory demand. The report states low-end smartphone costs have already risen 20–30% year-to-date, memory prices could rise another 40% through Q2 2026, and total bill-of-materials (BOM) for a new smartphone may increase between 8% and over 15% above current elevated levels; average selling prices (ASPs) are expected to increase 6.9% next year.

The firm identifies a divergence by segment and vendor: premium players Apple and Samsung are described as “best positioned” to pass on higher costs and are forecast to see only ~2% shipment declines, whereas Chinese OEMs (Honor, Xiaomi, Oppo, Vivo) face larger declines (Honor >3%) and reversed growth expectations for Vivo and Oppo. This implies premium brands may preserve margin by raising ASPs while low-end demand and volume-driven revenue for smaller OEMs will be most exposed.

Key near-term risks are further memory-chip price inflation and resultant higher BOMs that could suppress unit demand, especially in price-sensitive segments. Investors should track memory pricing into Q2 2026, ASP and shipment revisions, and share shifts between premium and low-end vendors as primary read-throughs for sector earnings and market-share dynamics.

Key Decisions for Investors

• Tilt portfolios toward premium OEM exposure (Apple and Samsung) relative to smaller Chinese OEMs given their greater ability to pass through higher costs, consider underweighting or avoiding names with high exposure to the low-end segment such as Honor, Vivo, Oppo and Xiaomi, Monitor memory and AI-chip price trajectories closely through Q2 2026 as key catalysts for further BOM and ASP changes and use those datapoints to time exposure adjustments, Watch shipment and ASP data for early signs of demand elasticity or inventory rebalancing in the low-end market and be prepared to reduce cyclically exposed hardware positions if unit demand weakens further