Morgan Stanley warns of 16% drop in Android phone shipments
Morgan Stanley has reduced its 2026 global smartphone shipment forecast by 15%, lowering its estimate to 1.1 billion units as rising memory chip costs threaten to push device prices higher and weaken consumer demand. The revision, outlined in a March 22 research note, reflects growing concern that component shortages tied to artificial intelligence demand will ripple across the mobile market.
The bank expects Android manufacturers to feel the largest impact. Vendors are likely to raise average selling prices to offset higher component costs, but Morgan Stanley warned that price-sensitive Android buyers may scale back purchases. It forecasts Android shipments will decline 16% year over year, while Apple shipments are projected to fall only 2%, positioning Apple’s supply chain as relatively more resilient.
Within the Android ecosystem, Morgan Stanley signaled a preference for Xiaomi over Transsion Holdings, downgrading Transsion to Equalweight. Target prices were also reduced for AAC Technologies and BYD Electronic, though both retained Overweight ratings due to their exposure to Apple-related manufacturing. Sunny Optical was similarly downgraded to Equalweight.
The revised outlook aligns with broader industry warnings. IDC projected in late February that global smartphone shipments could drop 12.9% in 2026 to roughly 1.12 billion units, describing it as the steepest contraction on record. Gartner estimated an 8.4% decline, citing expectations that combined DRAM and SSD prices could surge by as much as 130% before the end of the year.
Supply pressure stems from a shift among major memory producers — Samsung Electronics, SK Hynix, and Micron Technology — toward allocating more production capacity to artificial intelligence workloads, which currently offer higher margins than consumer electronics components. This shift has tightened supply for smartphone makers, forcing adjustments across the sector.
Some manufacturers have already revised their production plans. Reports indicate that Xiaomi cut its 2026 shipment target by as much as 70 million units from an earlier projection of 180 million. Transsion also reduced its outlook by 30 to 45 million units, reflecting expectations of softer demand and higher production costs.
Lower-cost devices appear most vulnerable. IDC warned that smartphones priced below $100 — a segment that accounted for roughly 171 million units last year — may struggle to remain viable if component prices stay elevated. Analysts generally do not expect meaningful relief in memory supply or pricing before late 2027, suggesting the pressure on entry-level smartphones could persist for multiple product cycles.