How AI’s growth left consumer electronics facing an uncertain future

AI-driven memory demand is raising costs and squeezing smartphone and PC makers, while creating opportunities for Chinese chipmakers

By CLS Marketwatch

The global memory chip market is witnessing a profound transformation this year sparked by the rising tide of AI. Since 2022, the booming AI market has prompted the world’s three largest DRAM manufacturers to shift a massive portion of their capacity toward the AI sector. At the same time, traditional DRAM product prices continue to climb, creating cost pressures throughout the supply chain – from upstream wafers all the way down to the consumer market. That, in turn, has led to a wave of price hikes across the entire consumer electronics industry in China, for everything from smartphones to laptops.

The AI-hungry beast

Since 2022, the global DRAM market has undergone a supply-side transformation: AI technologies represented by large models have entered a period of explosive growth, driving a sharp surge in demand for high-performance memory chips. As such, the world’s three major manufacturers – Samsung (005930.KS), SK Hynix (000660.KS; SKHY.US), and Micron (MU.US) – have strategically shifted their focus toward AI servers and enterprise-grade storage.

By 2026, enterprise-grade memory chips needed for AI servers took up about 50% of DRAM wafer production capacity, and this figure is expected to rise further to around 60% in 2027. As AI server manufacturers have locked in substantial wafer capacity in advance through long-term contracts, the consumer electronics sector continues to bear the brunt of limited capacity.

The hardest hit by this shift are mature products such as DDR4. The three major manufacturers plan to phase out their DDR4 production lines, yet current mid- to low-end smartphone processors still rely primarily on DDR4 and lower specifications. As existing capacity continues to shrink and new supply fails to materialize, the supply-demand gap will keep widening. Moreover, prices for traditional DRAM have risen about 700% since 2022.

Upstream booms while downstream bleeds

Persistent increases in memory chip prices have triggered a dramatic redistribution of profits along the supply chain – terminal players are under severe strain, while upstream manufacturers are enjoying record profits.

The smartphone market has borne the brunt of supply shortages. Taking phones costing $1,000 or less as an example, the share of memory components as a proportion of total costs has soared from 10% to 15% of the total to 40% to 50%, and has even approached nearly two-thirds of total costs in certain models, leaving virtually no profit margin. In response, many low-end smartphone manufacturers have been forced to downgrade specifications, and some have even resorted to use of secondhand chips to maintain production.

In this context, many manufacturers have found themselves unable to continue production, as evidenced by the shutdowns of some smaller ODMs. Meizu (001229.SZ), a long-established Chinese smartphone manufacturer, suspended its smartphone business in March. At the same time, Oppo, Xiaomi (1810.HK) and other Android brands have opted for collective price hikes of 300 yuan to 500 yuan ($44 to $74), while some manufacturers have even hiked prices a second time. Price increases for new models in the second half of the year are expected to be even higher, with some models jumping as much as 1,000 yuan.

The PC and tablet sectors haven’t been spared either. By the third quarter of 2026, the share of memory components as a percentage of total PC costs had climbed to 40% to 60%. Brands including Lenovo (0992.HK), Asus (2357.HK), HP (HPQ.US) and Dell (DELL.US) have all adjusted their prices over the past year. As prices soar, global laptop shipments in 2026 are expected to decline by about 8% year-over-year.

In sharp contrast, upstream players are enjoying a golden age of profitability. Global memory giant Micron’s revenue for the third quarter of its fiscal year surged 346% year-over-year, with net profit skyrocketing more than 13-fold. Chinese memory leader ChangXin Memory anticipates its net profit in the first half of 2026 reached 50 billion yuan to 57 billion yuan, a more than 22-fold increase from the same period last year.

A tale of challenges and opportunities

Looking ahead, the memory shortage for consumer electronics is unlikely to change in the near term, though the pace of price hikes may gradually moderate. DDR5 16GB is expected to see quarter-on-quarter growth of about 19.2% in the third quarter of 2026, with a further increase of around 10% in the fourth quarter. LPDDR is also expected to climb about 20% quarter-on-quarter in the third quarter.

DRAM supply growth is poised to accelerate over the medium to long term as newly built wafer fabs come online over the next two to three years. And once the demand peak driven by AI infrastructure subsides, DRAM supply and demand are likely to become more balanced. But consumer electronics will have to endure the dual challenges of elevated costs and subdued demand during this nearly three-year supply shortage transition.

Beyond the memory question, localization presents another noteworthy factor in the current climate. Chinese memory chip makers, represented by ChangXin and Yangtze Memory Technologies, are rapidly gaining share in the PC, smartphone and consumer SSD markets, and are now meeting demand for mid- to high-end smartphones, despite tight supply. The nearly three-year supply shortfall presents a critical window of opportunity for China’s domestic memory chip makers to fill the gap. Yet in the premium HBM and AI enterprise-grade memory sectors, domestic alternatives are still struggling to achieve large-scale substitution.

Overall, as demand for AI computing power explodes, the reallocation of memory chips by the three major manufacturers has led to supply shortages and escalating costs for consumer electronics makers. Products such as smartphones and PCs are all facing severe challenges in supply, costs and profitability, while industry-wide tensions continue to mount. The consumer electronics industry will remain under pressure until new capacity comes onstream. In this environment, Chinese memory chip manufacturers can seize this prime opportunity to accelerate their penetration into the memory chip supply chain.

CLS Marketwatch provides insights and analysis on China’s industries. You can contact the author at liujingyi@cls.cn

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