Except for the second user/refurbished smartphone markets, AI means the days of cheap phones are over, with huge price pressures putting low-end vendors out of business.
Omdia data confirms that Apple and Samsung are undisputed kings of the hill, combining for 42% of the market even as smartphone sales overall have seen a 4% average decline.
The two companies increased market share by 4% (Apple) and 2% (Samsung) compared with 2Q25. Meanwhile, the situation is becoming much worse for smaller vendors as memory prices spiral, leaving their businesses under immense strain. Data from Counterpoint Research tells a similar story, indicating Apple growth against a background of market decline.
It’s important to put the impact of raised RAM costs into perspective. While Apple and Samsung make products at the kind of scale that enables them to cut better deals, smaller makers don’t have the same advantage, leaving them far more exposed to memory price driven pressures.
Memory prices are crushing the low end
And they really are exposed; not only are sales declining, but Omdia analyst Runar Bjorhovde notes that vendors at that end of the market are dealing with hugely destructive DRAM price hikes over just the past year — up to four or five times higher in some cases. That degree of increase is the kind of business-focused tsunami that drives people out of the market altogether and certainly leaves companies exposed to M&A activity.
Right now, memory and storage can account for more than 60% of the product cost, Bjorhovde said. And as costs continue to increase, what profitability that does exist in the low-cost, high competition lower end smartphone space is being utterly mauled. Omdia forecasts a 22% decline in the sub-$400 smartphone segment as a result.
“Samsung Electronics and Apple — the two market leaders — made huge market share gains…, whereas most players beyond went through steep volume declines,” Bjorhovde said.
From volume to value
Apple’s decision to expand its addressable market with the iPhone ‘e’ series just adds pressure, while Samsung’s enduring popularity helps make it difficult for smaller vendors to generate profit through market scale. “To adapt, vendors are shifting their strategies from volume to value by reoptimizing portfolios and adjusting retail pricing,” he said.
“Although memory and storage costs are the biggest challenges for vendors, they are far from the only challenge,” Bjorhovde said. “New semiconductor bottlenecks, such as within foundries, are adding further cost pressures.”
With the cost of manufacturing set to continue to rise, it’s generally accepted that we’ll see the average selling price of smartphones climb in the coming 12 months, with Apple set to lead the market toward higher cost builds with the new Pro and Ultra iPhones this September.
Apple’s decision to hold smartphone prices so far has added another price pressure to low-end vendors; the longer it holds its prices down, the longer and more painful will smaller vendors hang onto their own low-price structure to compete.
Future shock: AI hardware
A further wild card is in Apple’s recent lawsuit against OpenAI, which accuses the ChatGPT maker of “illegal reliance on misappropriated trade secrets” in its hardware plans. OpenAI is thought to be planning an AI-driven iPhone competitor.
We’ve heard speculation about these plans before, of course. But what seems to be emerging in the wake of Apple’s litigation are hints OpenAI intends to introduce its first AI hardware product at some point in 2027.
Assuming that schedule remains on track, OpenAI will likely impose further component pricing pressure across the whole industry. After all, Apple’s customer loyalty leads the industry, and Samsung has built something similar. So, the companies with the most to lose to OpenAI will be the same set of smaller vendors who are already struggling with component price-driven market complexity.
OpenAI products will demand the same memory, similar processors, manufacturing, and other components as other devices, prompting further pricing pressure. That’s likely to put some small vendors out of business entirely, even as standard smartphone prices increase.
Fragmentation will be next
Those outcomes won’t be universal, as the desire for sovereign data services and growing mistrust of US tech companies suggest OpenAI’s products might see limited adoption in most markets. But they could serve to accelerate divergence in smartphone purchasing patterns worldwide, while adding to market pressure.
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