India's smartphone shipments just posted their steepest June-quarter decline in six years, falling 10 percent year-over-year in the April-June period, according to market research firm Counterpoint Research. The culprit is not a recession or a pandemic-era supply chain disruption. It is the AI boom, and it is hitting consumer electronics in a way that most founders never saw coming.
The memory chips inside every smartphone (the RAM and NAND storage that determine whether an app loads quickly or a photo saves without stuttering) are the same components that AI data centers consume by the truckload. Manufacturers including Samsung, SK Hynix, and Micron have been shifting production capacity toward high-bandwidth memory, or HBM, the specialized chips used in AI accelerators. Those chips generate far more profit per silicon wafer than standard DRAM and NAND. The result is a shrinking supply of the memory that powers consumer devices and rising prices for everything else.
India, the world's second-largest smartphone market by shipments after China, is providing the strongest evidence yet that this disruption has arrived. The South Asian nation is home to more than 1.4 billion people and over 700 million smartphone users. It has become a bellwether for consumer demand in price-sensitive markets, and the data coming out of it is stark.
Ground Zero for the AI Memory Tax
The impact has been far more pronounced in India than in other major markets. China's smartphone shipments fell just 2 percent in the same quarter. India has been hit harder because roughly 60 percent of its smartphone market sits in the sub-20,000 rupee segment, which is under $210. That is precisely the price band where higher memory costs hurt the most, according to Tarun Pathak, vice president of research at Counterpoint.
The numbers bear that out. The sub-15,000 rupee segment, or under $150, saw shipments collapse 45 percent year-over-year. Smartphone prices across the market have risen between 4 percent and 68 percent, depending on the model. Consumers are responding by delaying upgrades, stretching replacement cycles to around four years from about 3.5 years previously. Many are turning to the secondhand market instead.
Kiranjeet Kaur, associate research director for mobile phones research at IDC, described the market as shifting from volume-led growth to value growth. Fewer phones are being sold overall, but each one generates more revenue as lower-priced devices become increasingly uneconomical to produce. She told TechCrunch that memory shortages and elevated smartphone prices are likely to persist until at least the end of 2027. For Indian consumers, the weaker rupee adds a second layer of pain, making imported components even costlier and adding to the margin pressure that brands are passing on to buyers.
Winners and Losers in the Reshaped Market
The effects are not uniform across the market, and the divergence tells us something about where consumer electronics is heading. Samsung was the only major smartphone brand to post shipment growth in India during Q2, with volumes rising 2 percent year-over-year. Apple saw shipments fall 3 percent, though that decline was driven more by supply constraints and inventory shortages than by demand weakness.
The pain has been most acute among Chinese brands that rely heavily on entry-level and mid-tier devices. Their combined market share fell to the lowest level for any second calendar quarter since 2020. The tougher economics are also prompting strategic retreats. OnePlus said this week that it would stop launching new products in Europe and North America while maintaining its India business, following what it called a careful assessment. Counterpoint data showed that China accounted for 74 percent of OnePlus's global smartphone shipments in Q1, up from 59 percent a year earlier, while India's share fell to 19 percent from 30 percent. The pattern is clear: brands are retreating to markets where they can still turn a profit and ceding ground everywhere else.
Pathak noted that running multiple sub-brands only makes sense if each one sells enough volume to cover shared costs, and that math stops working once margins get this thin. Profitability, he said, is the key to deciding market operations.
Founder Implications: The AI Inflation Wave Hits Physical Products
For founders and operators, this story carries a warning that extends far beyond smartphones. The AI boom is no longer contained to data center GPUs and cloud API bills. It is now driving real, measurable inflation in physical goods.
If you are building a hardware-dependent product, such as a smart home device, an IoT sensor, an edge AI appliance, or even a kiosk with a touchscreen, you need to factor in memory cost increases for the next 12 to 18 months at minimum. The same dynamic that is pushing smartphone prices up by 68 percent will compress margins on any device that uses DRAM or NAND flash memory. That includes virtually every connected product on the market.
Financing is becoming central to affordability in the consumer space, a trend that brands and retailers are already acting on by building inventory ahead of festive seasons to lock in lower component costs before further increases. For founders addressing consumer markets outside the premium tier, the math has fundamentally changed. You cannot rely on the same bill of materials costs that held six months ago, and you cannot assume they will revert when the next production cycle comes around.
The AI infrastructure buildout created a silicon supply chain that now prioritizes data center memory over consumer memory. That reordering is not temporary. It is structural, and it means that every founder building on physical hardware should expect the AI memory tax to be a permanent line item in their cost structure.