Memory Now Accounts for 54% of Budget Smartphone Parts Bill

By Grace Kim

Memory chips now account for 54% of the bill of materials (BOM, the total component cost) for budget smartphones, up from 20% in the third quarter last year, according to market research firm Counterpoint Research. That 34-percentage-point jump means more than half of all component purchasing now goes to DRAM (dynamic random-access memory) and NAND flash (non-volatile storage).

Counterpoint released the finding in a report on the 11th. Its data attribute the shift to surging memory demand centered on AI data centers. Samsung Electronics (005930.KS) and SK hynix (000660.KS) have concentrated production on high-value products such as high-bandwidth memory (HBM) and server DRAM, leaving less capacity for commodity memory used in smartphones.

Prices for older DRAM, used mainly in budget handsets, rose sharply as output cuts compounded the supply squeeze.

The price sequence was:

• From the third quarter last year to the first quarter (Q1) this year, memory prices more than doubled.
• In the second quarter, prices rose 80% to 90% from the previous quarter.
• In the third quarter, they rose another 15% to 30%.

Counterpoint said the jump in memory purchasing costs hit price-sensitive budget smartphone makers hardest. Handset makers have responded by raising prices repeatedly. Global average retail smartphone prices have risen 20% this year, according to Counterpoint, while consumers in emerging markets face a growing cost burden because those markets rely heavily on low-priced models.

To protect margins, manufacturers are either raising prices or cutting features such as storage capacity and cameras. Global smartphone shipments fell 20% in the third quarter from a year earlier, the lowest third-quarter level in 14 years.

Consumers have delayed replacement purchases, and manufacturers have cut production of low-priced models. Some smaller makers are considering recycled or lower-grade memory to reduce costs.

What does this change for budget smartphone buyers?

The immediate effect is higher retail prices, trimmed features and fewer low-cost models. Buyers may encounter less storage or fewer camera capabilities at a given price, while some entry-level devices may come with lower-grade or recycled memory.

For buyers in emerging markets, where low-priced models carry more weight, the 20% rise in global average retail prices adds to replacement costs just as shipments reach a 14-year third-quarter low.

Pricing outlook

Counterpoint's separate memory pricing report, released this month, projects a slower rate of increase in the fourth quarter (Q4) than in the third. Mobile memory prices should hold relatively steady in Q4, but early negotiations for first-quarter contracts next year point to further increases; mobile prices are expected to rise sharply again in the first quarter.

Server DRAM is leading the rise. Suppliers are tightening long-term contract and purchasing terms, adding to the burden on customers. PC DRAM (personal-computer memory) also continues to climb quarter after quarter.

Counterpoint Research's forecast: “Memory prices are likely to keep rising through the first quarter of next year and may stabilize only around the middle of next year.” That outlook leaves handset makers little room to reverse retail increases, specification cuts or lower production without absorbing more cost.