It's now official: consumers will pay significantly more for their smartphones this year. A dramatic move by Samsung illustrates the economic trap facing the global smartphone industry. The world's largest smartphone manufacturer has instructed its component suppliers to aggressively cut production volumes by 20% to 30% ahead of the final quarter of the year, according to international reports following the quarterly report released Wednesday night.
In practical terms, the move means reducing Samsung's annual production target from approximately 270 million devices to just 200 million, eliminating tens of millions of units from its production lines.
Samsung's new lineup of foldable smartphones, including the latest Fold model
(Photo: Samsung)
Behind the unusual move is a surge in the prices of memory chips (DRAM) and semiconductor components, which have risen by more than 170% amid enormous demand from the artificial intelligence industry. As a result, smartphone manufacturers' profit margins have been almost entirely eroded, a situation expected to affect an increasing number of manufacturers worldwide.
Samsung already has raised prices on its premium devices by $100 this year and introduced even higher price tags for its flagship series and foldable phones. However, according to various reports, industry sources acknowledge that the company now makes almost no profit from manufacturing and selling smartphones. On lower-cost models, it is even forced to absorb direct losses on every unit sold. When every device leaving the factory barely breaks even, the most logical way to protect the bottom line is simply to produce fewer phones.
Samsung's move creates an unprecedented paradox within the company itself. On one hand, its mobile division is being forced to cut production despite demand for flagship devices remaining stronger than for previous generations. On the other, the same surge in chip prices that is weighing on its smartphone business is driving Samsung's semiconductor division to historic highs. The tech giant is surpassing companies such as Nvidia and Google and is expected to report unprecedented quarterly operating profit of more than $80 billion — the highest profit ever recorded by a technology company in a single quarter.
This situation is not unique to Samsung, but it reflects the global balance of power. In the United States, Apple is trying to insulate itself from price fluctuations through long-term, multiyear purchasing agreements and an almost exclusive focus on the high-end premium segment, where profit margins are large enough to absorb rising hardware costs. In Europe, meanwhile, consumers are grappling with persistent inflationary pressures and environmental regulations that encourage longer device lifespans. Smartphone sales are experiencing a prolonged slowdown, making it difficult for manufacturers to raise prices without triggering a sharp drop in demand.
In China, the dynamics are different and even more complex. Major manufacturers such as Xiaomi, Oppo and Vivo, which have traditionally relied on razor-thin profit margins and mass production of midrange devices, find themselves facing an existential dilemma. Chinese manufacturers cannot sharply raise prices for their domestic customers and are therefore expected to increase prices in international markets. They are also being forced to downgrade components or scale back their global expansion plans.
At the same time, Huawei continues to benefit from extensive government support and its reliance on largely self-contained domestic supply chains, allowing it to better navigate disruptions in international markets.
In Israel, the local market has traditionally favored premium Samsung and Apple devices, even as consumers have become increasingly sensitive to the rising cost of living. Samsung maintains its position as the leader in the Israeli market, holding more than half of the market alongside Apple. However, cuts to global production could lead to reduced inventories, fewer discounts and a clear push by importers toward more expensive models.
Israeli consumers looking for midrange smartphones may find that cheaper devices are gradually disappearing from store shelves or that their prices are climbing to levels previously reserved for flagship models. This could reshape the market and fuel a boom in sales of refurbished and secondhand devices.
Samsung's decision marks the end of an era in which smartphone makers competed primarily on sales volume. For more than a decade, tech companies fought for market share at any cost, flooded the market with dozens of inexpensive models each year and treated sales volume as the ultimate measure of success.
Now, as computing infrastructure and chip production are increasingly directed toward powering artificial intelligence, driving up basic manufacturing costs, the market is returning to more conservative economic principles: It is better to sell fewer devices at a profit than to retain the title of the world's largest manufacturer while subsidizing money-losing smartphones.