Smartphone makers are entering a tight silicon cycle. Industry trackers say global smartphone system-on-chip shipments are set to decline about 7% even as revenue grows in double digits, a mismatch driven by scarcity, rising input costs, and a pivot to premium devices.
The squeeze stems from an AI-fueled reshuffling across the semiconductor supply chain. As chipmakers chase higher-margin components for data centers, the cost of building phones is rising, and the cheapest models are feeling the most pain.
AI Compute Is Diverting Silicon Capacity
Counterpoint Research links the shipment decline to ballooning demand for AI infrastructure. Foundries and memory vendors are prioritizing accelerators and High Bandwidth Memory, where margins and backlog are strongest. TrendForce has flagged persistent tightness in HBM and advanced packaging, with lines such as TSMC’s CoWoS effectively booked by AI customers.
That rerouting matters for phones. DRAM and NAND pricing have moved higher alongside AI demand, and memory content per device continues to grow as on-device AI scales. Even modest increases of a few dollars per handset on memory alone can erase already thin profits in the entry tier.
Suppliers like SK hynix, Samsung, and Micron are racing to add HBM capacity, but those expansions do not immediately translate to relief for mobile. Until the AI backlog eases, the mobile bill of materials remains exposed to memory and substrate cost swings.
Budget Phones Face The Steepest Price Squeeze
Counterpoint’s outlook points to the sub-$150 segment as the hardest hit. When memory and foundry wafers get pricier, low-end devices quickly become uneconomic. Expect fewer ultra-cheap SKUs, more reuse of prior-generation chipsets, and trimmed distribution in cost-sensitive markets.
To deliver headline features without bloating the bill, brands are leaning on cloud-assisted AI. That means generative features may be available, but offloaded when possible to conserve on-device compute and memory. It’s a pragmatic compromise for mid-range phones priced between $100 and $500.
At retail, the mix will likely skew toward higher-margin models, with promotions concentrated on mid-tier and flagships rather than true entry-level devices. Fewer launches and longer lifecycles for legacy models are also on the table.
Foundry And Node Economics Are Rapidly Shifting
The industry is marching from 3nm to early 2nm generation nodes, with gate-all-around designs becoming mainstream at the top end. Early movers have signaled new mobile SoCs on these processes, chasing efficiency gains and bigger neural processing budgets.
But the cost per wafer at advanced nodes has climbed, and yields take time to mature. That pushes designers to reserve cutting-edge processes for premium chipsets while cascading mature nodes to the mid-tier. Expect halo chips touting around 100 TOPS of on-device AI throughput and widespread offline AI in premium phones, with Counterpoint suggesting as many as 90% of high-end models enabling on-device features.
Another constraint: advanced packaging. As AI accelerators consume substrate and 2.5D/3D packaging capacity, phone chips must compete for the same ecosystem of materials and equipment, making supply tighter and pricing stickier than in past cycles.
Winners And Losers In The Smartphone SoC Race
Despite the turbulence, Counterpoint expects MediaTek to maintain a leading 34% share, supported by competitive ARM-based designs that balance performance and price in mid-tier devices. Qualcomm remains strong at the high end with about 24.7%, leveraging custom CPU designs and advanced modems.
Apple’s vertically integrated approach sustains roughly 18.1% of the market by value, concentrated entirely in premium phones. Samsung is the notable gainer, projected to reach 12.1% as it leans further into in-house silicon and tight integration across its product stack.
The common denominator is margin. With one in three smartphones expected to be priced above $500, chip designers can grow revenue even on lower unit volumes, provided they win the premium sockets.
What It Means For Shoppers And The Industry
Upgraders should brace for pricier phones and a clearer divide between premium on-device AI and cloud-reliant features in the mid-range. The upside: better efficiency, stronger connectivity, and longer software support as brands justify higher prices.
For the industry, the path back to volume growth likely requires a cooldown in AI infrastructure demand or a step-up in capacity across memory, substrates, and advanced packaging. Until then, expect streamlined model lineups, greater emphasis on in-house chip programs like Tensor and Exynos, and a continued drift toward profitability over sheer units.
