This festive season, shoppers looking for new phones could be a tad disappointed. Instead of discounts and offers, they’d be met with higher prices and lower specifications.

The industry has been facing supply-side challenges with rising costs of memory and other components, forcing most equipment makers to take multiple rounds of price hikes. And that is going to affect the cheaper smartphones that are popular in India.

The average smartphone price went up by 15% by the end of the second quarter, found Counterpoint Research.

“New phones are getting expensive, and the prices of existing phones are going up. From January to July this year, the prices of almost 95% of the models have increased. Apart from Apple, everyone has increased the prices of their existing smartphone models,” Tarun Pathak, vice president at Counterpoint Research, told The Core on a podcast.

Wholesale smartphone shipments fell to the lowest first half in the last five years — narrowing by 11.1% to 33.2 million, showed IDC data.

The outlook for the second half of the year is much bleaker.

“Rising prices are now touching every corner of India’s smartphone market. Festive discounts, typically the trigger for purchases, look unlikely this year as cost pressure builds through H2 2026. Shipments are set to decline by over 15% in the second half, taking full-year volumes down to roughly 128-130 million units,” Upasana Joshi, senior research manager, devices research at IDC Asia/Pacific, told The Core.

The Rs 10,000 Phone Goes Poof

The domino effect of rising smartphone prices starts with extensive artificial intelligence-led demand, pushing up memory chip prices by 4.5 times what they were last year.

According to Madhur Singhal, managing partner at Praxis Global Alliance, the underlying cause is a structural shift of global chip capacity toward AI infrastructure, and not a cyclical swing.

“Hyperscalers are spending heavily on AI infrastructure and locking in memory supply well in advance, pulling manufacturers to prioritise higher-margin AI memory over conventional consumer chips. Mobile-grade memory specifically is running at several times year-ago levels. No real relief is expected for another year or two,” Singal told The Core.

Memory chip prices have flipped the economics of manufacturing a smartphone. Earlier, memory had a 12% contribution towards a smartphone. Now, with extensive cost inflation, it has gone up to almost 45% 40-45%. Entry-level phones are the worst hit and have little or no legroom to increase prices.

“A Rs 10,000 phone used to have memory that contributed around Rs 1,200-1,500 a year back. Now, it takes Rs 5,000 rupees to just procure memory. Then come the chipset, display, battery and camera, which are also very expensive. The economics doesn't allow you to make a great phone under Rs 10,000, so there is a high possibility that this segment will be completely wiped out,” said Pathak.

IDC found that sales in the sub-$100 market (around Rs 10,000) has already fallen by 74% YoY in Q2, with its share shrinking to 4.5% from 15.6% last year.

While memory is a great contributor, it’s not the only factor that’s making phones expensive. “Most of the recent retail price increase traces back to memory, with currency depreciation and other component cost inflation making up the rest. This has created pressure in the budget segment that actually carries the most volume,” said Singhal.

Flipping Back To 4G

Smartphone makers are also trying to hold on to certain price points by cutting corners. But there is little legroom, as memory prices are increasing progressively every quarter, shifting the cost economics away from affordability.

“There are certain original equipment manufacturers (OEMs) that have launched LCD versions, where they replace OLED with LCD. They have cut down on the front camera, the selfie camera, and charging specifications. But even doing that, you can't control the overall price,” said Pathak.

As a temporary response to rising prices, a few OEMs have also reintroduced older-generation 4G phones. “Entry-level 5G devices have grown steadily costlier this quarter (Q2), pushing several brands to reintroduce or extend 4G models to hold their footing in the segment, lifting 4G’s share to 11.1% as a supply-led stopgap move,” says IDC.

But this cushion might not last forever as eventually consumers will have to shift back to costlier 5G phones as the older inventory of 4G phones runs dry.

The shift in affordability of phones will also impact the country in multiple ways. “The broader sub-INR 15,000 band remains more significant structurally, still accounting for a substantial share of India's total volumes. It's also a digital-inclusion concern, as a large base of feature-phone users has no realistic upgrade path if even basic 4G phones stay near this price point. Manufacturers are increasingly exiting the tier rather than absorbing losses, meaning fewer choices for consumers, not just higher prices,” says Singhal.

Replace, Refurbish Or Restrain?

It’s not just the affordable segment, but price rises have been taken at almost all segments. But the new value anchor in the market is now the $100-200 (Rs 10,000-20,000) phones, as per IDC, whose shipment share held steady even in a slipping market.

The price shock has also come at an inopportune moment as the broad consumption outlook is softening. As prices rise, consumers will have few options but to delay replacements, elongating the cycle.

“The replacement cycle has lengthened noticeably compared to a couple of years ago. Financing delinquencies on device purchases have also ticked up above normal levels, which is a sign of affordability pressure. That said, the wider consumption picture is uneven rather than uniformly weak,” says Singhal.

On the other hand, the elasticity in the market could come from refurbished phones. “The refurbished and second-hand market will actually grow by 13%, because people will find every way to reduce the cost of their new phones. What they will do is they will bring back the droid phones that are there, trading in the channel, and hence you will have more options in the second-hand market as well,” says Pathak.

According to Shrey Sardana, co-founder & CEO at recommerce startup Grest, secondary smartphones account for roughly one in five smartphones (20%) sold in India now, up from around 12% in 2021. The platform, which mostly sells Apple devices, says consumers buy refurbished devices from Rs 15,000 all the way up to nearly Rs 1 lakh — looking for a quality experience.

“The refurbished electronics market is already around $6 billion and growing at roughly 12% annually, but organised recommerce still accounts for only about 15–20% of that market. That gap is important. The demand was always there; the ecosystem needed to catch up,” Sardana says.

With digital inclusion and the rise of UPI, smartphones have become ubiquitous in the plebeian life of most Indians. If prices of new devices move away from affordability, they might look for old models with more specs and an accessible price.