According to agency data, the global smartphone market's total value is projected to soar to USD 651.6 billion in 2026, marking a 12% increase from 2025 and representing a counterintuitive surge in overall market value.

The total market value in 2025 stood at approximately USD 582 billion, implying that the total revenue from smartphone sales in 2026 will exceed that by about USD 70 billion, equivalent to RMB 469 billion.

Given the current market dynamics, this achievement is truly noteworthy. It's important to highlight that smartphone sales in 2026 are anticipated to reach only 1.097 billion units, a 12% year-on-year decline from 1.247 billion units in 2025, equating to a reduction of 150 million units sold.

However, despite the 150 million-unit decrease in sales, total revenue will climb by RMB 470 billion, indicating a significant rise in smartphone prices. The average price is expected to reach USD 594 (approximately RMB 3,980), up roughly 27.3% (RMB 850) from last year's USD 467 (approximately RMB 3,130).

Under typical circumstances, with higher average smartphone prices and a RMB 470 billion increase in total sales, one would expect smartphone manufacturers to enjoy substantially higher profits in 2026, right?

You might be mistaken. In reality, smartphone manufacturers are set to earn less in 2026 because a substantial portion of the profits is being captured by memory chip manufacturers.

This trend is evident when examining Xiaomi's financial reports.

In the second quarter, Xiaomi's smartphone business revenue was RMB 42.1 billion, a 7.5% year-on-year decrease, with shipments of 31.2 million units, down 26.5% year-on-year. However, the average selling price (ASP) surged to RMB 1,351, a 25.9% increase, hitting a record high.

Despite the higher average price, the gross margin declined to only 8.5%.

Compared to the 11.5% gross margin in the same period last year, this represents a reduction in gross profit of approximately RMB 1.3 billion. The first quarter exhibited a similar pattern, resulting in Xiaomi spending roughly RMB 2.5 billion more on memory in the first half of the year.

For the entire year, Xiaomi smartphones are expected to spend at least RMB 5 billion more on memory. Thus, while smartphone manufacturers' revenues have increased, their profits have not risen accordingly but have instead decreased, as the additional funds have flowed to memory manufacturers. Over the past year or so, prices for DRAM and NAND chips have skyrocketed, increasing four to five times.

Xiaomi is merely a representative example; other manufacturers are facing similar situations. Whether it's Apple, Huawei, or Samsung, the average prices of their smartphones have all risen due to the significant increase in memory prices. However, the increase in smartphone prices has not kept pace with the surge in memory prices.

Consequently, the extra revenue generated by smartphone manufacturers through price hikes has all gone to memory manufacturers, and it's not even sufficient—they have to pay a bit more in what could be termed a 'memory tax.' Ultimately, they are earning less themselves and essentially working for the memory manufacturers.