Neil Shah on TaiwanPlus: How Rising Memory Prices Are Reshaping the Smartphone Market

Overview

Counterpoint Research Co-founder Neil Shah joined TaiwanPlus to discuss how surging memory prices are pushing up device costs worldwide and reshaping the smartphone market. He explains why low-end smartphones are taking the biggest hit, with a decline of almost 14% this year and a further 3 to 4% next year, and why that could “wipe out” 100 to 150 million phones from the market over the next three years.

Neil also outlines how the shift plays out across the supply chain. Chinese low-end brands face disruption, foundries such as TSMC stand to benefit as consumers trade up to premium devices, and display, battery and other component makers are squeezed as OEMs work to hold the bill of materials constant. 

Outline

Rising Memory Prices Are Pushing Low-End Phones Out of the Market 

• Higher memory prices are raising the overall cost of devices, especially at the low end, where costs have climbed so far that launching new devices is becoming difficult. 
• Customers will either have to buy a more expensive new phone or a second-hand one. 

Supply Chain Impact: Chinese Brands and Taiwan Foundries 

• Low-end phones are dominated by Chinese brands, which depend mainly on China's supply chain and, to a some extent, on Taiwan, including foundries such as TSMC and long-tail suppliers such as UMC. 
• Consumers are being pushed toward pricier devices, so foundries like TSMC stand to benefit from demand for more expensive iPhones and Android phones. 

Component Makers Squeezed by Deflationary Pressure 

• OEMs want to keep the device bill of materials constant, so rising memory and chip costs push pressure onto other suppliers. 
• Display, battery and other component makers are squeezed the most, as they cannot grow their ASPs. 
• Neil expects most of this supply chain to be affected by the resulting deflation. 

Consumers Trade Up: Why Premium Makes Sense 

• A phone that cost US$150 two years ago now costs around US$300. 
• Paying US$300 for the same specs makes little sense, so Neil expects consumers to spend a little more and buy a US$500 phone. 
• As a result, people end up with a better phone, with more advanced specs, a better camera, more RAM and a stronger processor. 

Frequently Asked Questions 

How are rising memory prices affecting the smartphone market? 

Rising memory prices are pushing up overall device costs, especially for low-end phones, where higher costs make it hard to launch new devices. Neil Shah expects an almost 14% drop in the low-end segment this year and a further 3 to 4% drop next year.