AI's Memory Hunger Makes Sub-$100 Smartphones a Dying Breed

The budget smartphone, long a go-to for a child’s first device or a simple handset for seniors, is staring down an existential crisis. A new analysis by research firm Omdia reveals that memory costs for phones priced under $100 are set to surge 400% by the third quarter of 2026. This spike could inflate the bill of materials for a typical entry-level model from just $14 a year ago to around $70, vaporizing the already razor-thin margins that define the segment.

Jusy Hong, Omdia’s senior research manager, offered a blunt assessment during a recent webinar: current memory prices alone have already surpassed what the entire component budget for a sub-$100 smartphone was a year ago. “It is impossible to manufacture smartphones below US$100 at the moment… [or] in the near future,” Hong said. Her firm expects vendors to exit the category entirely, pivoting toward more profitable mid-range devices despite unmet demand from cost-conscious consumers.

The root cause is artificial intelligence. Memory chipmakers have redirected production capacity toward high-density, high-margin components for AI servers and data centers, starving the supply of cheaper chips that consumer electronics depend on. This supply crunch is cascading through the industry, pushing average selling prices higher. In the first quarter of 2026, the global average hit $577—a 12% year-over-year increase—and the higher costs are already dampening demand. Global shipments slipped 4% in Q2, and Omdia now forecasts a 12% contraction for the full year, with the sub-$400 tier bracing for an even steeper 22% decline.

Phone makers are scrambling to adapt. Vivo recently raised the price of its iQOO 15’s top storage configuration by 1,500 yuan, while Oppo and Xiaomi both logged double-digit shipment drops last quarter, according to IDC data. In an effort to offset rising component costs, some brands are downgrading displays and camera specifications, but Omdia’s Zaker Li notes that these savings are quickly consumed by the relentless increase in memory and other key parts, leaving retail price hikes as the only viable response.

Hong expects the ultra-cheap segment to eventually recover once memory supply and pricing stabilize, but that rebalancing could be a year or more away. For now, the dream of a $100 smartphone is being squeezed out by the insatiable demands of AI, leaving millions of budget-minded buyers with fewer options.