Unless your personal tech budget has bloated, prepare to stick with your current smartphone for a while thanks to AI-driven demand that has driven up memory prices and made new handsets so expensive that sales are falling dramatically.

So says research firm CCS Insight, which expects smartphone shipments to fall by 15 percent this year as some entry-level devices have already seen their sticker prices go up by more than 50 percent since last year.

The firm found that the primary smartphone market (meaning new devices) contracted 4.4 percent in the first quarter of this year, despite sales channels front-loading (meaning stockpiling) product inventory, as device prices begin to rise sharply.

As CCS notes, this casts an ominous shadow on the outlook for the rest of the year, and it seems things have worsened since The Register first started reporting on the smartphone memory woes.

Back in January, the forecast was for handset price rises of 6-8 percent, while the most pessimistic outlook was that the global market might contract as much as 5.2 percent.

By February, analysts were expecting to see a decline in shipments of around 8 percent across the global market, and for prices to increase by about 14 percent.

The root cause of all this is the AI craze, which has seen huge demand for high-performance GPU-filled servers to process it all. Chipmakers have moved to capitalize on this by prioritizing production of high-margin memory components for those servers, rather than making the plain old DRAM and NAND needed for PCs and phones.

This is different from the usual boom-bust cycle of the memory market, where prices rise because of production issues constraining supply. Instead, it is demand-side pressure from hyperscalers that has tipped the balance, leading to a memory supercycle that may last until 2028.

"The memory chip crisis shows no sign of slowing down in the near future, ramping up the pressure on manufacturers and consumers. Memory components now account for more than 30 percent of a manufacturer's bill of materials in some smartphones.,” said CCS research analyst Ben Hatton.

“The full impact has yet to be felt in many regions, but it's clear that device prices will accelerate over the rest of the year.”

As expected, budget devices are the worst hit, as memory and storage costs make up a higher proportion of their bill of materials, hence some entry-level devices seeing a 50 percent jump in price.

In contrast the organized secondary market (meaning traders in pre-owned devices) grew by four percent during the first quarter, as consumers in search of low-cost phones increasingly see used devices as a suitable alternative. CCS therefore believes the second-hand smartphone market will grow by 15 percent this year.

But there’s a snag. With fewer people buying new phones, the supply of pre-owned models will tail off as well, as it relies on people trading up.

This was highlighted by a report in May, which found that replacement cycles are getting longer as consumers often hold on to their devices for more than four years, rather than the couple of years that used to be typical.

There are also fewer smartphone vendors these days, meaning fewer launches every year.

“The secondary market has an opportunity to serve some of the demand that will be unfulfilled by the primary market,” commented Hatton.  “The major challenge in the near term is to grow supply during a fallow period of flagship launches.”

Countries with mature trade-in programs will be in a stronger position to capitalize on this opportunity and see higher growth rates in the pre-owned market. As The Register reported last year, this probably doesn’t mean Europe, as less than a third of consumers there trade in or sell their old phones, limiting the supply of second-hand devices. ®