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The smartphone industry is about to have its worst year on record, and it is not particularly close.
Counterpoint Research projects global smartphone shipments will plummet 13.9% in 2026, landing at roughly 1.08 billion units. That would make it the steepest annual decline the market has ever seen. IDC arrived at a nearly identical forecast, pegging shipments at approximately 1.09 billion units, a decline of the same magnitude.
What’s choking the supply chain
The culprit is a familiar one with a new twist: memory chips. Specifically, DRAM and NAND flash, the components that let your phone store data and run applications, are in critically short supply.
Two forces are squeezing supply simultaneously. First, artificial intelligence applications are devouring memory chips at an unprecedented rate. Every AI model, every on-device inference engine, every data center expansion is competing for the same pool of DRAM and NAND that smartphone makers need. Second, geopolitical disruptions related to the Iran war have further complicated an already strained global supply chain.
The shortage was already visible in Q1 2026, when smartphone shipments fell 6% year-on-year. Weak consumer sentiment compounded the problem, creating a double hit of constrained supply and softening demand.
This is actually worse than what analysts expected just a few months ago. Back in February, Counterpoint had forecast a decline of 12.4%. Revising that figure upward by 1.5 percentage points in a matter of months suggests conditions deteriorated faster than anyone anticipated.
Winners and losers in a shrinking market
Not every phone maker is feeling the pain equally. The shortages are hitting budget and mid-range manufacturers hardest, which makes intuitive sense. When component costs rise, building a $150 phone on razor-thin margins becomes nearly impossible.
Chinese brands like Transsion, Xiaomi, and Honor are facing significant drops in units sold. These companies built their empires on affordable devices sold in massive volumes across emerging markets. A memory chip shortage that inflates component prices is an existential threat to that business model.
Meanwhile, Apple and Samsung are actually gaining market share during the downturn. Premium device makers can absorb higher component costs more easily because their margins are fatter to begin with. A $50 increase in memory costs is a rounding error on a $1,200 iPhone. On a $120 Transsion handset, it is a dealbreaker.
OEMs are delaying new product launches or scrapping entry-level models entirely, choosing instead to focus on premium devices where margins justify the elevated input costs.
Why this matters beyond smartphones
The smartphone decline is a symptom of a much larger reallocation happening across the semiconductor industry. AI’s insatiable appetite for memory is fundamentally reshaping who gets chips and at what price.
IDC expects supply constraints to persist well into 2027, forecasting a further 1.1% decline in shipments that year. Memory chip shortages extending through the second half of 2027 means this is not a temporary blip.
For investors monitoring the tech sector, the implications cut in two directions. Companies heavily dependent on smartphone volume, particularly component suppliers, contract manufacturers, and budget phone makers, face a prolonged revenue squeeze. Revenue growth projections for firms tied to consumer electronics volumes may need significant downward revision.
On the flip side, the very shortage crushing smartphone shipments creates opportunities elsewhere. Memory chip producers like Samsung’s semiconductor division and SK Hynix are seeing prices rise alongside AI-driven demand.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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