Months after analysts first warned that AI-fueled demand for memory chips would disrupt consumer electronics, India is now offering the clearest proof yet that the shift has arrived—as rising handset prices reshape the smartphone market. The chips in question—RAM and storage components—are the same ones tech giants need in massive quantities to build AI data centers. Manufacturers like Samsung, SK Hynix, and Micron have been reallocating production capacity toward high-bandwidth memory, the specialized chips used in AI accelerators, because these yield far higher profits per wafer than the standard memory used in phones and laptops. This leaves less capacity for everyday consumer electronics and drives up their costs.

India, the world’s second-largest smartphone market by shipments after China, saw its smartphone shipments fall 10% year-over-year in the April-to-June quarter, according to market research firm Counterpoint Research. That marks the steepest June-quarter decline in six years, as higher memory costs pushed up handset prices. The impact has been more pronounced in India than in China, where smartphone shipments fell just 2% in the second quarter, according to Counterpoint. India has been a key market for global smartphone brands for years. With over 1.4 billion people and more than 700 million smartphone users, the South Asian nation has become a bellwether for consumer demand in price-sensitive markets. This makes shifts in buying patterns closely watched by device makers, chip suppliers, and investors tracking the broader health of the AI supply chain.

However, many consumers are expected to delay upgrades, stretching replacement cycles to around four years from about 3.5 years previously. Premium brands like Apple and Samsung remain better insulated from the slowdown. The uneven impact is already reshaping competition among smartphone makers. Samsung was the only major brand to post shipment growth in India in the second quarter, with volumes rising 2% year-over-year, according to Counterpoint. Apple, by contrast, saw shipments fall 3%—though that dip largely reflected supply constraints and inventory shortages limiting how many iPhones Apple could deliver.

The pain has been most acute at the lower end of the market. Shipments in the sub-₹15,000 (under $150) segment fell 45% from a year earlier, Counterpoint said. Because Chinese brands are heavily exposed to entry- and mid-tier smartphones, their combined market share fell to its lowest level for a second calendar quarter since 2020. The tougher economics are also prompting strategic shifts. This week, Chinese smartphone brand OnePlus said it would stop launching new products in Europe and North America, while maintaining its India business, following what it described as a careful assessment. In other words, OnePlus is retreating to markets where it can still turn a profit and ceding ground elsewhere—a pattern likely to repeat across other budget-focused brands as margins tighten. “Sub-brands normally have overlaps and shared resources, and you need a minimum base to justify the cut-throat margins. Profitability is the key to deciding market operations,” he said.

Consumers feel the squeeze. That pressure on brands is trickling straight down to the people buying their phones. Kiranjeet Kaur, associate research director for mobile phones research at IDC, said the Indian smartphone market is shifting from volume-led growth to value growth—meaning fewer phones are being sold overall, but each one generates more revenue—as higher component costs make lower-priced smartphones increasingly uneconomical. The higher component costs are already filtering through to consumers. Smartphone prices in India have risen by between 4% and 68%, depending on the model, Pathak said. As prices rise, consumers are either moving to higher-priced devices, delaying upgrades, or turning to the secondhand market. She added that brands and retailers were also building inventory ahead of the festive season to lock in lower costs before further increases in component prices.

IDC also expects India’s smartphone shipments to decline by double digits in the second quarter, a steeper fall than the 4.1% decline in the first quarter and the 5.3% drop in the previous quarter, Kaur said. However, she noted the firm’s estimates were not yet finalized. “For Indian consumers, it is a double whammy as the weaker currency makes imports costlier, which has added to margin pressures for the market players, and they are passing on the cost to the consumer,” Kaur said.