India is the world’s second-largest mobile phone manufacturer, with smartphones becoming the country’s top export. From Prime Minister Narendra Modi downwards, nearly all functionaries of the government have never missed an opportunity to choose to tom-tom this achievement. But the country’s smartphone market has taken a drastic hit as far as sales are concerned. According to the latest Monthly India Smartphone Tracker from Counterpoint Research, smartphone shipments in India have dropped by 10 per cent year on year (y-o-y) during the second quarter of 2026 (April-June). The drop is stated as the worst in six years for the second quarter, most of which is attributed to the supply chain issues created by the Random Access Memory (RAM) chip shortage.
In fact, the mobile manufacturing industry is dealing with one of the biggest headwinds, which has already influenced the product strategy of several companies and it is unlikely to end anytime soon. Experts say it should be until the second half of next year. “It’s going to be a bit of a new normal for a while,” says a representative of the industry.
The crisis is attributed to the diversion of chips for use in the AI industry. Chipmakers are increasingly diverting production capacity toward high-end chips needed for AI systems, including High Bandwidth Memory (HBM) used in AI computing, server DRAM required for data centres and advanced processors for AI training and inference.
This has reduced the production of chips widely used in consumer electronics, such as LPDDR4 (Low Power Double Data Rate 4) memory chips used in smartphones, the most widely used ‘working memory’ memory in mobile devices worldwide. Besides, standard DRAM chips for household appliances and storage chips used in personal electronic devices.
To make matters worse, the global semiconductor industry is highly concentrated, with production dominated by a few firms like TSMC (Taiwan), which is the world’s largest contract chip manufacturer, Samsung (South Korea), a major producer of memory and logic chips, SK Hynix (South Korea), a leading producer of DRAM memory chips and Micron (the US), another major supplier of DRAM and NAND memory. This concentration makes the global supply chain vulnerable to disruptions.
Hitting the common man hard
The ongoing crisis is hitting affordable smartphones used by the common man harder than premium devices. Industry sources believe that by the end of this year, the cost of memory alone for a 24GB RAM and 1TB storage configuration could be higher than the bill of materials cost of an entire phone. That’s why it’s having such a drastic impact on the sub-Rs30,000 segment. It has also led to an average smartphone price increase of 15 per cent by the end of Q2 2026.
The crisis has forced the government to announce a flurry of decisions starting with the Mobile Phone Manufacturing Scheme (MPMS), injecting Rs62,500 crore over five years to transition the industry from mere assembly to local R&D, component sourcing, and homegrown brand development. Replacing the initial PLI scheme, the MPMS offers production incentives of 2.25-5 per cent, with extra incentives for sourcing components domestically and an additional 3 per cent for developing local brand designs and intellectual property. To secure the supply chain, the government has approved a Rs1.28 lakh crore semiconductor package focused on chip design and manufacturing equipment.
“India’s smartphone market has been under pressure during the quarter, as both demand and supply were adversely affected,” states Prachir Singh, senior analyst, Counterpoint Research. “As most Chinese brands are heavily exposed to the entry- and mid-tier segments, their overall market share has fallen to its lowest level for a second calendar quarter since 2020,” he adds.
To address the concerns regarding price hikes, many manufacturers are going back to expanding their 4G portfolios in the mass market, using older and cheaper network tech as a temporary financial shield until 5G component costs stabilise.
The industry says that, if the crisis continues, ‘Make in India’ initiatives could face component shortages. Beneficiaries under the PLI Scheme may experience rising input costs. Mobile phone manufacturing, a flagship export sector, could face production disruptions. Micron executives have also warned that Indian firms are not making sufficient long-term purchase commitments, raising the risk of future shortages.
Policy-makers globally are beginning to recognise semiconductor shortages as a new inflationary challenge. Economists at the US Federal Reserve have identified unusually high price increases in the Computer Software & Accessories category as a major contributor to core inflation.