Chipflation Slams China’s Budget Phone Makers as Shipments Plunge 20%

Memory semiconductor price surges have unleashed a wave of “chipflation” that is upending the global smartphone market. As worldwide smartphone shipments in the second quarter plunged to their lowest level in 13 years, Chinese manufacturers focused on mid-range and budget devices took a direct hit. Meanwhile, Samsung Electronics (005930.KS) and Apple, armed with premium strategies and stable supply chains, managed to expand their market share even as the broader market contracted.

According to market research firm Counterpoint Research on July 15, global smartphone shipments in the second quarter of 2026 fell 11% year-over-year—the lowest second-quarter figure since 2013. Another research firm, Omdia, also reported a 4% decline for the same period, confirming the market contraction.

The primary culprit behind the shipment plunge is a severe shortage of memory semiconductors. Explosive demand for DRAM and NAND flash memory used in AI data centers has led memory manufacturers to prioritize high-value products over consumer-grade components, triggering a sharp spike in smartphone component costs. According to market tracker DRAMeXchange, the price of a standard PC DRAM chip (DDR4 8Gb) skyrocketed eightfold from $2.60 in June 2025 to $21 in June 2026. Over the same period, NAND flash memory (128Gb MLC) prices surged more than ninefold, from $3.12 to $28.82. “Some manufacturers have seen their memory procurement costs rise four to five times compared to a year ago,” an industry insider said.

Rising component costs inevitably translated into higher product prices, dealing a particularly devastating blow to the price-sensitive budget and mid-range segments. According to Omdia, memory and storage now account for over 60% of the bill of materials for budget smartphones, and more than 30% even for premium models. “The global memory shortage has now moved beyond a simple supply issue to a stage where it is suppressing consumer demand,” said Shilpi Jain, senior research analyst at Counterpoint Research. “It has become structurally impossible to maintain profitability on budget and mid-range devices at previous price points.”

The chipflation wave crashed hardest on China’s smartphone makers. The combined market share of China’s three largest manufacturers—Xiaomi, Oppo, and Vivo—fell to 31% in the second quarter, down 4 percentage points from 35% a year earlier. Their share had peaked at a record 37% in the second quarter of 2024, but has been on a steady decline since memory prices began their steep ascent.

The shipment declines are even more striking. Based on Counterpoint Research data, Xiaomi’s second-quarter shipments plunged 24% year-over-year, while Oppo and Vivo dropped 18% and 21%, respectively. Figures compiled by research firm IDC showed the Chinese trio’s combined shipments fell 22% to 81.2 million units, with Xiaomi suffering the steepest decline at 26%. “Memory costs have risen approximately 300% from a year ago and now account for over 65% of the bill of materials for low-end phones,” IDC noted, adding that the business environment for mid-range and budget-focused players is deteriorating rapidly.

In contrast, Samsung Electronics and Apple turned the crisis into opportunity. Samsung reclaimed the top spot with a 24% market share in the second quarter, according to Counterpoint, up 4 percentage points from 20% a year earlier. Omdia data also placed Samsung at number one with a 22% share. Strong sales of the Galaxy S26 series drove performance, with the Ultra model in particular seeing high demand thanks to its privacy display and AI features. Samsung’s strategy of minimizing price hikes and running aggressive promotions in emerging markets such as India and the Middle East also paid off. As Chinese rivals scaled back their budget lineups under cost pressure, Samsung appears to have absorbed their mid-range and low-end market share.

Apple posted its best-ever second-quarter performance with a 20% market share. Despite the traditionally slow season, robust replacement demand for the iPhone 17 series sustained momentum. Apple was the only major manufacturer to hold product prices steady, a move that drew positive consumer response. However, shipments in the Chinese market softened somewhat due to reduced discounting and lower supply of older models.

Industry consensus suggests the market restructuring triggered by chipflation will not be a temporary phenomenon. “Memory price declines will not begin until the second half of 2027 at the earliest,” said Le Xuan Chiew, research manager at Omdia. “It will be difficult for prices to return to pre-2025 levels.” As a result, smartphone makers’ strategy of prioritizing profitability over shipment volumes is likely to persist for an extended period.

Manufacturers are already responding by phasing out low-margin models and expanding sales of refurbished and older devices. A portfolio restructuring centered on premium products is also expected to accelerate. Counterpoint Research forecasts that global annual smartphone shipments will decline approximately 14% this year, with the memory supply shortage extending into 2027. As the market shifts toward premiumization, consumers with limited budgets are likely to find their options increasingly constrained.

Major Manufacturers’ Q2 2026 Smartphone Market Share