Highlights

• DRAM chip price hike by Samsung and Micron could raise smartphone costs.
• Indian government’s import duty cut offers partial relief against price increases.
• Chinese yuan’s appreciation adds extra pressure on smartphone prices in India.
• Potential shift in market strategy towards lower memory and storage in budget phones.

If you’re in the market for a new smartphone, brace yourself for a price hike.

Starting from the June quarter, the cost of smartphones is expected to go up, primarily due to rising memory chip prices and the strengthening Chinese yuan.

Despite a recent reduction in import duties on mobile components by the Indian government, which could provide some relief, the overall trend points towards more expensive devices.

Why Are Prices Going Up?

According to TrendForce, a market research firm, two major suppliers of DRAM memory chips, Samsung and Micron, are poised to increase their prices by 15-20% in the March quarter.

This hike is linked to a tight supply of memory chips, spurred by a growing demand for artificial intelligence and high-performance computing technologies, as well as a recovery in the smartphone and PC markets.

TrendForce’s January report stated, “For products where inventory is more abundant, such as LPDDR4X or those from older manufacturing processes, the estimated contract price increase will be about 3–8% for the quarter. In contrast, LPDDR5(X) appears to be in tighter supply, with projected contract price increases of 5–10%.”

An industry insider spoke to The Economic Times, indicating that the impact of these price increases will be noticeable from the next quarter, as current stock levels of components are sufficient for the March quarter’s production.

“We anticipate a surge in memory prices, expected along the lines of 10-15% due to high demand in the third week of February to first week of March. If this happens, everyone will have to increase prices, but the recent duty cuts can help us nullify the impact to an extent,”  the executive explained.

Currency Fluctuations Adding to the Pressure

The strengthening of the Chinese yuan is another factor that could influence smartphone prices in India.

Many smartphone brands in the country have started dealing directly with Chinese component manufacturers, paying in yuan instead of the US dollar.

Since June 2023, the yuan has seen a 6.7% increase from Rs 11.32 to Rs 12.08 in December.

Possible Impact on Demand and Market Strategies

Market analysts warn that higher retail prices could dampen the recently recovering demand for smartphones.

To avoid price hikes, brands might consider offering budget smartphones with lower memory and storage capacities.

Shilpi Jain, a senior research analyst at Counterpoint Research, told The Economic Times, “Memory costs constitute a larger portion of the bill of materials for budget smartphones. Thanks to previously lower memory prices, brands have been able to offer up to 8GB of RAM and 256GB of storage for under Rs 10,000. This will likely change with the upcoming increase in memory prices.”

Furthermore, the anticipated growth in the availability of 5G handsets priced under Rs 10,000 may slow down.

Counterpoint now predicts that only about 1-2% of all smartphones below Rs 10,000 will support 5G, a decrease from the 4% projected in November 2023.

FAQs

Why are smartphone prices expected to increase in 2024?

The expected rise in smartphone prices can be attributed to a 15-20% increase in DRAM memory chip prices by suppliers like Samsung and Micron, coupled with the strengthening of the Chinese yuan against the Indian rupee.

How might the recent import duty cut affect smartphone prices?

The Indian government’s decision to reduce import duties on mobile components may slightly offset the impact of rising chip costs and currency fluctuations, providing some relief to consumers.

What could the strengthening of the Chinese yuan mean for smartphone prices in India?

As many Indian smartphone brands deal with Chinese component manufacturers in yuan, the currency’s 6.7% appreciation since June 2023 could lead to higher costs for importing these components, potentially increasing smartphone prices.

How are brands likely to respond to increased memory chip prices?

To avoid passing the full price increase onto consumers, brands may opt for offering budget smartphones with lower memory and storage capacities, affecting the availability of high-spec models at lower price points.

Will the price increase affect the availability of 5G smartphones under Rs 10,000?

Yes, the price hike and increased memory chip costs are expected to slow the penetration of 5G handsets in the under Rs 10,000 segment, with a predicted decrease in 5G support among these budget models.

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