(Yicai) June 3 -- With major global memory chipmakers shifting production toward high-bandwidth memory and server dynamic random access memory to meet fast-growing demand for artificial intelligence infrastructure, supplies for smartphones are being squeezed and the effect is now showing up in the prices of China’s mid-range handsets.

The recently launched Honor 600, Oppo Reno16, Vivo S60, and Huawei Nova 16 have generally been priced higher than their predecessors, in many cases by between CNY300 and CNY1000 (USD44 and USD148). Higher phone prices are now an industry-wide phenomenon.

Boosted by the 618 mid-year shopping festival and the summer replacement cycle, the end of May through July is a crucial sales period for Chinese smartphone makers. In China, the CNY2,000 to CNY5,000 bracket is the biggest sales segment and the most fiercely contested.

For years, handset producers have fought hard over the mid-range segment, and those offering higher specifications at similar prices usually won more market share. This year, though, cost pressure is forcing them onto different paths.

Oppo Mobile Telecommunications and Huawei Technologies are trying to offset the price increases by improving cameras and batteries as well as by incorporating flagship features into mid-range models. The Reno16 series, for example, uses a quad-main-camera setup and a 6,700 milliampere-hour battery. Huawei’s Nova 16 series is also bringing premium features such as periscope telephoto and Red Maple imaging to the mid-range market.

Vivo Mobile Communication and Honor Device have introduced lower-spec "vitality editions" in their latest product lineups, while keeping standard editions at higher prices.

One reason to add cheaper, lower-spec versions is to make the overall price increase less noticeable to consumers, according to Guo Tianxiang, research manager at International Data Corporation's China unit. As pricing across the market shifts upward, the main products that once sold for around CNY2,000 are moving closer to CNY3,000, Guo said.

Even with these adjustments, manufacturers are still struggling to absorb the upstream cost shock.

Cost Pressure

“As everyone knows, the prices of memory have increased significantly, and our cost pressure is very high," Yu Chengdong, chairman of Huawei's consumer business group, said in April. "For flagship phones, depending on the configuration, costs have risen between CNY1,200 and CNY1,500, so we face significant pressure when setting prices.”

Surging demand for AI has impacted memory prices, leading to an increase in smartphone costs, noted Li Jian, Honor’s chief executive. Rising phone prices are an industry-wide issue, and the entire sector is under much pressure, he stressed.

The latest market downturn is different from previous years, according to Yang Wang, chief analyst at Counterpoint Research. That seen in 2022 and 2023 was chiefly driven by demand-side factors, while today it is a typical supply-side shock, Yang said.

TrendForce expects average selling prices for Low Power Double Data Rate 5X (LPDDR5X) DRAM to climb 78 percent to 83 percent this quarter from the first quarter, while LPDDR4X prices are predicted to jump 70 percent to 75 percent. That could make this the smartphone sector’s steepest decline in more than a decade, industry insiders said.

Global phone shipments fell 3.1 percent in the first quarter from a year ago after nine consecutive quarters of growth, with wholesale prices rising 14 percent, according to Counterpoint Research. As inventory built before the shortage is run down, the price pressure is likely to spread further into the end-user market.

Xiaomi and Shenzhen Transsion Holdings, which concentrates on the under USD150 phone market, will likely see shipments drop 28 percent and 32 percent, respectively, this year, making them the most affected companies, Counterpoint noted. Apple and Samsung Group are expected to be less impacted due to their stronger supply chain integration and higher profit margins.

Editor: Martin Kadiev