The global smartphone market has slumped to its weakest second quarter in more than a decade as the artificial intelligence (AI) I infrastructure boom diverts memory chips away from consumer electronics, driving up handset prices and squeezing demand in sensitive markets like Kenya.
Global smartphone shipments fell by 11 percent year-on-year in the three months to June, marking the lowest second-quarter volumes since 2013, according to market intelligence firm Counterpoint Research.
The slowdown comes as soaring prices for memory chips, key components in smartphones, challenge phone-manufacturing after chip makers shifted production capacity towards high-margin AI data centres.
The supply squeeze has been compounded by tensions in the Middle East, which have increased oil prices and shipping costs, further inflating smartphone prices amid slowing global economic growth and weak consumer spending.
“The memory crisis has overtaken every other factor as the single biggest drag on the smartphone industry. What started as a components issue last year is now a full-blown demand issue,” Counterpoint Senior Analyst Shilpi Jain said.
Entry-level and mid-tier smartphones, which account for the bulk of global sales, have become unfeasible at previous price points as makers grapple with higher material bills.
“Original equipment manufacturers (OEMs) responded differently. Some are increasing prices and accepting margin pressure, while others are extending the life cycle of older-generation models and using promotions to retain budget-conscious buyers. A few are pulling back on launches and production,” Ms Jain said.
The impact is already being felt in Kenya, where handset distributors warn that years of steady smartphone adoption are slowing as higher manufacturing costs filter to consumers.
Brian Waweru, head of publicity in Kenya for Vivo Mobile, says smartphone shipments across the region are losing momentum.
“In Kenya, Uganda, Tanzania, South Sudan and Somalia, shipments that had risen to nearly eight million units by the end of 2024 slowed to about 7.2 million in 2025,” Mr Waweru told the Business Daily.
The cost pressures have translated into steeper retail price increases. The company expects the regional market to weaken further this year because of the memory shortage and logistics disruptions linked to tensions in the Middle East.
“Entry-level models have jumped 80 percent from Sh9,999 to Sh17,999, mid-range devices are up 28 percent from Sh35,000 to Sh45,000 and premium models have surged 80 percent from Sh100,000 to Sh180,000 in just two years,” Mr Waweru said.
The AI boom has tightened supplies of memory chips used in smartphones, laptops and other electronics, threatening the low-tier models that have helped expand smartphone access among low-income families.
The price of Random Access Memory (RAM), once among the cheapest components in electronics manufacturing, has more than doubled since October 2025 and continues to rise as US technology giants such as OpenAI, Google, Meta, Microsoft and Amazon invest billions of dollars in AI infrastructure.
Most smartphones rely on dynamic random-access memory (DRAM) and NAND flash memory chips.
However, AI data centres require more advanced – and more profitable – high-bandwidth memory (HBM), prompting leading chipmakers like South Korea’s Samsung, SK Hynix and US firm Micron Technology to prioritise supply to cloud computing firms over smartphone makers.
Estimates show that HBM chips used in data centres yield up to 80 percent profits.
M-Kopa, one of Kenya’s smartphone makers, recently said the cost of memory chips has risen three- to four-fold since October 2025 as suppliers divert production to AI applications.
“Demand for AI memory is high, meaning manufacturers are dedicating most of their capacity to AI. That has pushed up the cost of memory significantly,” M-Kopa head of manufacturing Ismael Abisai said in May.
“The cost for memory has gone up three to four times. A memory type that went for $19 (Sh2,454) is now $65 (Sh8,394).”
The downturn has been concentrated among brands that have invested heavily in the budget smartphone segment. Chinese firms Xiaomi, Oppo and Vivo recorded double-digit shipment declines.
“Considering their greater exposure to these tiers, the brands were disproportionately affected as consumers delayed purchases, traded down to older-generation devices or extended replacement cycles,” the Counterpoint report says.
Premium brands have been more resilient. Samsung increased its global shipment share to 24 percent from 20 a year earlier, helped by strong demand for the company’s most premium Galaxy S26 series.
US tech giant Apple expanded its market share to 20 from 17 percent and was the only major smartphone maker that avoided price increases during the quarter, buoyed by continued demand for the iPhone 17 series despite softer sales of older models.
Google and Huawei bucked the broader market trend, posting shipment growth of 16 percent and six percent respectively, driven by new flagship launches.
Analysts expect the pressure to persist well into 2027. Counterpoint forecasts a substantial fall in global smartphone shipments in 2026, saying manufacturers are prioritising profit over volumes.
“OEMs are likely to keep prioritising value over volume, trimming low-margin models, pushing configuration and storage-tier adjustments and leaning further into refurbished and previous-generation devices to retain budget-conscious buyers,” the research firm says.
Projections by the International Data Corporation (IDC) show that worldwide smartphone shipments will decline by 13.9 percent this year to 1.09 billion units, the steepest annual contraction on record.
“The deepening memory shortage crisis remains the dominant force behind the record 14 percent drop this year, but it is no longer the only one,” Nabila Popal, Senior Research Director at the US market intelligence firm, said.
“The US-Iran war has added a fresh layer of cost pressure for smartphone OEMs, driven by rising oil prices and transport costs. These pressures are compelling vendors to reduce shipments, raise prices and concentrate on higher price tiers.”
IDC says average smartphone selling prices have climbed to a record $550 (Sh71,142) this year, up from $450 (Sh58,208) in 2025, signalling what analysts describe as the end of the era of ultra-cheap smartphones.
The biggest pain is expected in emerging markets. IDC projects smartphone shipments in the Middle East and Africa will decline by 23 percent this year, the steepest regional contraction globally, as the sub-$200 (Sh25,870) segment bears the brunt of rising costs.
Manufacturers are increasingly turning to financing options to cushion buyers from higher prices.
“Affordability is a growing challenge, but financing options remain our greatest hope,” Mr Waweru said.
