The artificial intelligence boom is beginning to exact a visible cost on consumers, and India’s smartphone market is emerging as one of the clearest examples of how the massive buildout of AI infrastructure is reshaping global electronics supply chains.

As memory manufacturers divert production toward high-margin AI chips used in data centers, the supply of conventional memory for smartphones has tightened, pushing handset prices higher and triggering the sharpest slowdown in India’s smartphone market in six years.

The development provides one of the strongest pieces of evidence yet that AI’s unprecedented demand for semiconductors is no longer confined to data centers and cloud infrastructure. Instead, it is now influencing consumer electronics markets by altering manufacturing priorities, pricing dynamics and purchasing behavior.

India, the world’s second-largest smartphone market after China, recorded a 10% year-on-year decline in smartphone shipments during the April-June quarter, according to Counterpoint Research. The drop marks the steepest June-quarter contraction since 2020 and significantly exceeds the 2% decline recorded in China, according to TechCrunch, highlighting how AI-driven supply constraints are disproportionately affecting price-sensitive markets.

At the center of the disruption are memory chips.

The DRAM and NAND flash chips used for smartphone RAM and storage are manufactured on production lines that increasingly compete with high-bandwidth memory (HBM), the advanced memory technology essential for Nvidia’s AI accelerators and similar processors from AMD, Intel, and custom AI chip developers.

Over the past two years, memory manufacturers including Samsung Electronics, SK Hynix, and Micron have aggressively shifted manufacturing capacity toward HBM because it commands substantially higher margins than conventional smartphone memory. Producing HBM is also considerably more complex, requiring advanced packaging technologies and longer production cycles, limiting the industry’s ability to simultaneously expand the output of traditional memory chips.

The consequence has been a tightening supply of standard memory components used across smartphones, tablets, PCs, and other consumer devices. Months ago, semiconductor analysts warned that booming AI infrastructure investment would eventually ripple through consumer electronics by raising memory prices. India’s latest smartphone data suggests that the prediction is now materializing.

Unlike China and developed markets, India is particularly vulnerable because of the structure of its smartphone industry.

Around 60% of smartphone sales occur below the 20,000 rupees ($210) price point, where manufacturers compete on thin margins, and consumers are highly sensitive to even modest price increases.

“Higher memory costs have had the biggest impact” in this segment, Tarun Pathak, Counterpoint Research’s vice president of research, told TechCrunch.

India’s importance extends beyond its size. With more than 1.4 billion people and over 700 million smartphone users, the country has become one of the world’s most important indicators of consumer demand in emerging markets. Global handset manufacturers, semiconductor suppliers, and investors closely monitor Indian sales trends because they often foreshadow purchasing behavior across other price-sensitive economies.

Rather than abandoning smartphones altogether, consumers are adapting.

Pathak expects replacement cycles to lengthen to approximately four years, up from about 3.5 years previously, as buyers delay upgrades in response to higher prices.

That behavioral shift could have long-term implications for smartphone manufacturers, many of which rely on increasingly frequent replacement cycles to sustain shipment growth.

The slowdown is also exposing a widening divide between premium and budget smartphone makers.

Samsung was the only major manufacturer to increase shipments in India during the second quarter, posting 2% annual growth, according to Counterpoint. Apple’s shipments declined 3%, although analysts attributed most of the decline to supply constraints and inventory shortages rather than weakening demand.

Premium brands have generally proved more resilient because their customers are less sensitive to price increases and increasingly rely on financing options that spread the cost of expensive devices over several years.

“Consumers buying higher-end smartphones have proved less sensitive to price increases,” Counterpoint senior analyst Prachir Singh told TechCrunch, noting that financing has softened the impact of higher prices.

Budget manufacturers have faced a much more difficult environment.

Shipments in India’s sub-15,000-rupee ($150) smartphone segment plunged 45% from a year earlier, illustrating the severe pressure on entry-level demand.

Chinese smartphone makers have been particularly affected because their businesses remain heavily concentrated in lower- and mid-priced devices. As a result, Chinese brands collectively saw their Indian market share fall to its lowest second-quarter level since 2020.

The pressure is already forcing adjustments across the industry.

This week, Chinese smartphone maker OnePlus announced it would stop launching new products in Europe and North America while maintaining its presence in India after reassessing market economics.

Counterpoint data shows China accounted for 74% of OnePlus’ global shipments in the first quarter, up from 59% a year earlier, while India’s contribution fell to 19% from 30%.

The figures suggest manufacturers are increasingly concentrating resources on markets where scale and profitability remain achievable while retreating from regions offering weaker returns.

Pathak said the economics of operating multiple smartphone sub-brands are becoming increasingly difficult as margins compress.

“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.

The industry’s adjustment extends beyond manufacturers to consumers themselves.

According to IDC Associate Research Director Kiranjeet Kaur, India’s smartphone market is shifting from volume-driven expansion toward value-driven growth, meaning fewer devices are being sold but at higher average selling prices.

Memory shortages and rising component costs are making low-priced smartphones increasingly difficult to produce profitably. Counterpoint estimates that smartphone prices in India have risen between 4% and 68%, depending on the model.

Consumers are responding in three primary ways: delaying upgrades, purchasing more expensive models through financing, or turning to the growing secondhand smartphone market.

Financing has consequently become “central to affordability,” Kaur told TechCrunch.

Retailers and smartphone manufacturers are also building inventories ahead of India’s festive shopping season to secure components before further price increases materialize.

IDC likewise expects India’s smartphone shipments to record a double-digit decline during the second quarter, substantially worse than the 4.1% decline recorded in the first quarter and the 5.3% contraction in the preceding quarter.

Although IDC’s estimates have not yet been finalized, Kaur expects memory shortages to remain a defining feature of the industry.

She believes elevated smartphone prices are likely to persist through at least the end of 2027, although the pace of price increases should gradually moderate as supply expands and consumers adjust to permanently higher pricing.

India also faces an additional challenge absent in many other markets.

The depreciation of the Indian rupee has made imported components more expensive, further squeezing manufacturer margins and amplifying the effect of rising memory costs.

“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.

For years, smartphone demand largely dictated investment decisions for memory manufacturers. That hierarchy has now been reversed.

Today, AI infrastructure has become the industry’s dominant growth engine. Hyperscalers including Microsoft, Amazon, Google, Meta and OpenAI are investing hundreds of billions of dollars in AI infrastructure, generating unprecedented demand for high-bandwidth memory alongside advanced GPUs, networking equipment and chip packaging technologies.

Because memory fabrication capacity cannot be expanded overnight, manufacturers have naturally prioritized the products offering the highest returns.

India’s smartphone slowdown suggests consumers are becoming one of the first major groups to absorb the downstream consequences of that capital allocation.