Budget phones are about to get a lot more expensive

The budget smartphone market is under real pressure this year, and the cause isn't demand, it's memory. Analysts now expect sales of lower-tier phones to drop by around 22% in 2026 as the price of the RAM and storage chips inside them keeps climbing.

Why memory broke the budget phone

Memory has historically been a modest slice of what a budget phone costs to build. That's changed fast. Industry estimates now put memory at up to 64% of the total component cost on the cheapest handsets, a level that leaves phone makers with very little room to hold prices steady without cutting elsewhere, on cameras, battery capacity or build quality.

The arithmetic is unforgiving at the bottom of the market, and it is worth spelling out because it explains every spec-sheet oddity you will see this year. A flagship absorbs a memory price rise inside a thick margin; a £150 phone has no margin to absorb anything. When one component class doubles in price, the maker's options are to raise the price, cut the spec, or cancel the product, and all three are now visible across the industry. Nothing cancelled a CMF phone outright over RAM prices, which is the third option happening in public.

Where the memory went

The shortage is a demand shock, not a production failure. AI infrastructure is consuming memory at unprecedented rates, with high-bandwidth memory for accelerators taking priority allocation at the fabs, and manufacturers shifting production lines towards the premium parts because AI demand pays more per wafer. Gartner-tracked contract prices for the commodity DRAM and NAND that budget phones use have climbed around 130% year on year.

Budget phones sit at the back of that allocation queue by construction: they buy the cheapest memory in the largest volumes at the thinnest margins, which makes them the easiest customers to deprioritise when supply tightens. The same silicon-allocation logic that gave memory makers record AI-era profits is what empties the shelf at the £150 price point.

Who gets hurt, in order

It's the same shortage showing up at the premium end too, visible this week in the $1,699-plus price tag on MSI's new handheld gaming PC. Budget phones are simply where it's most painful, because the margins were already thin.

The segment it hurts most is the one least visible in Western coverage: first-time smartphone buyers in emerging markets, where the sub-$150 device is the entire internet access story. A 22% sales contraction there is not people skipping an upgrade; it is people staying on a broken phone or a feature phone for another year.

How makers are quietly adapting

The spec sheet tells you where the squeeze lands. Expect base storage tiers to stall or shrink, 8GB RAM listings to quietly become 6GB on next year's equivalent model, and bundled extras to vanish. Some makers lean on software, marketing virtual RAM features that page to storage, which is slower memory pretending to be faster memory. Others, like Xiaomi with the Redmi Turbo 5's enormous battery, concentrate the budget on a component class that isn't inflating, which is the smarter version of the same trade.

The second-order effects worth watching

A squeezed budget segment changes behaviour beyond the price tag. Upgrade cycles stretch, because the person who would have replaced a three-year-old phone at £150 holds it another year, which quietly increases the installed base of devices past their security update window. That is a security story as much as an economic one: the cheapest phones already receive the shortest update commitments, and the shortage pushes more users onto older, unpatched hardware for longer.

Carrier and retailer economics shift too. Budget devices drive footfall and subscriber additions in much of the world, and a 22% volume drop in that tier hits distribution businesses built on volume rather than margin. Expect more aggressive financing, trade-in and lock-in offers as the industry tries to hold the line on monthly cost while the upfront price climbs. The sticker price rising while the monthly payment holds steady is the retail industry's standard answer to component inflation, and it usually arrives with longer contract terms attached.

The signal to watch for the turn

Memory is the most cyclical commodity in electronics, and the turn always shows in the same place first: contract price announcements from the big three DRAM makers, followed by spot prices breaking downward. When manufacturers start announcing new capacity for commodity parts rather than AI-class memory, the budget segment's relief is about twelve to eighteen months behind it, which is roughly the lag between a fab decision and chips in phones.

Should you care?

If you've been putting off a sub-£200 phone upgrade waiting for prices to soften, the evidence right now points the other way. This looks like a year to buy sooner rather than later if a budget device is what you need, rather than waiting for a discount that may not come.

Three practical consequences follow. Current-generation budget phones at today's prices are likely the best value point for a while, because next year's equivalents will cost more or spec less. The used and refurbished market gets more attractive in relative terms, since devices already built carry yesterday's memory prices. And if you do buy new, prioritise the storage tier over almost everything else, because storage is the spec that cannot be fixed later and the one most likely to be cut. A microSD slot, where one exists, is suddenly worth more than it has been in years.

One caution against over-rotating: phone makers sign memory contracts quarters ahead, so retail prices move in delayed steps rather than tracking the spot market. Some of this year's shelf prices still reflect older, cheaper contracts, which is exactly why buying ahead of the repricing makes sense.

Memory pricing is cyclical, and gluts have followed every shortage in the industry's history. But the AI demand underneath this one is structural rather than cyclical, and nobody credible expects allocation priorities to swing back towards commodity parts within the year.

Key takeaways

• Budget phone sales are forecast to fall around 22% in 2026, driven by memory costs rather than weak demand.
• Memory has reached up to 64% of component cost on the cheapest handsets, destroying the thin margins the segment runs on.
• The cause is AI demand: commodity DRAM and NAND contract prices are up around 130% as fabs prioritise premium AI memory.
• Cancelled models, shrinking spec tiers and virtual RAM marketing are the visible symptoms, and emerging-market first-time buyers absorb the worst of it.
• Flagships hide the same inflation inside their margins; budget devices cannot.
• If you need a cheap phone, buy sooner rather than later, favour storage over other specs, and consider refurbished devices built at pre-shortage prices.