AI boom drains memory, upends india’s phone market

The break in data-center memory demand can be traced to 30 November 2022, when OpenAI released ChatGPT and turned large-language-model inference into a mass-market service. That launch is presented as the trigger that changed memory buying patterns, displacing prior demand based on commodity server DRAM and conventional GPU memory and creating new demand for high-bandwidth memory, or HBM, to support AI accelerators built for these emerging workloads.

That shift hardened in 2023 as the biggest cloud providers rebuilt capacity around AI rather than traditional server expansion. During 2023, Microsoft, Google, Amazon, and Meta scaled dedicated AI infrastructure, replacing general-purpose CPU-based data centers with AI accelerator clusters that relied heavily on HBM, a transition that moved purchasing away from the older balanced CPU-DRAM-storage model and made HBM a central driver of memory demand.

The bottleneck was mechanical, not rhetorical. The Herald Business noted memory chipmakers had posted losses as recently as 2023 due to oversupply, but the AI investment boom flipped the market into a supply deficit and strengthened pricing power. Financial Times projections put global memory chip purchases this year at roughly 0.7 percent of world GDP, with more than half of that investment flowing to memory chipmakers, while Samsung, SK Hynix and Micron redirected more than 80% of advanced capacity toward higher-margin HBM, starving phone-grade DRAM and NAND.

Once supply was pulled toward AI servers, smartphone economics changed quickly. Conventional DRAM contract prices rose 90 to 95% in Q1 of 2026 and NAND 55 to 60, with those costs flowing through to retail prices. Omdia said global smartphone shipments fell by 6 per cent year-on-year to 272 million units in the second quarter of 2026 because persistently high memory prices disrupted supply chains and raised component costs, while the market entered an adjustment phase driven by the ongoing memory cost cycle. SK Hynix’s CEO warned in July that the shortage will probably persist well beyond 2030, and the analysis said we’re potentially looking at two to four more years of elevated memory prices.

By mid-2026, the downturn in India’s smartphone market was already visible, and it worsened as the year progressed. Techcrunch tied the slide directly to the component shock in its July headline, “AI-Fueled Memory Crunch Slashes India Smartphone Shipments 10%,” while Communications Today reported that “India’s smartphone market contracted 13 percent year over year to 33.9 million units in the second quarter of 2026, hit by rising component costs and higher handset prices,” establishing that the contraction was not a one-off blip but an accelerating decline.

The real break came in the third quarter, when multiple trackers converged on a far steeper collapse and the budget end bore the brunt. Communications Today said shipments “fell 20 percent year on year, according to Counterpoint Research, while Omdia estimates a 26 percent decline to 35.8 million units, the lowest third-quarter volume since 2016,” and Techcrunch’s companion headline, “Samsung Grows as Sub-₹15K Sales Plunge 45%,” showed how the broader sub-₹20,000 band was unraveling toward a decade low.

As handset prices climbed, festive retail in India moved away from blunt discounting toward affordability engineering. RS Web Solutions reported that brands were offering fewer outright cuts and instead leaning on cashback, trade-ins and EMIs, especially where cost pressure was “particularly pronounced in the lower and mass-market smartphone categories,” with Counterpoint saying “component costs used in low-end smartphone configurations” had jumped sharply; Oppo’s F35 launch captured the shift, with zero-down-payment financing for up to 18 months, no-cost EMIs up to nine months, a 10 percent cashback, an exchange bonus up to 10 percent and an assured buyback of up to 70 percent for ₹399.

Buyers responded by stretching upgrade cycles, financing pricier models and increasingly using recommerce channels instead of paying full price for new phones. India Today’s headline, “Apple Offers Up to ₹81,500 Trade‑In Discount on New iPhone Duo Amid Supply Shortage,” and Livemint Technology’s note that “Due to rising memory chip costs, the prices of the iPhone 17 and 16 weren’t slashed and instead increased” showed how promotions now depended on exchange and payment mechanics: “To maximise savings, buyers would need an eligible old phone to exchange, along with a supported credit card,” and for the iPhone 17 Pro, Reliance Digital’s deal was explicitly in-store — “They must visit a store, as the discount is not applicable online” — with the retailer framing pricing around the 256GB variant and discount mechanics rather than a simple price cut; meanwhile, some Reliance Digital offers were store-only, and “iPhone sales have declined 30-40% year-on-year… as higher prices and thinner discounts make even older models less affordable, forcing buyers to wait for better deals or turn to refurbished devices.”