In the midsummer of 2026, the smartphone market is, however, gripped by a deep chill.
The latest Q2 industry data shows that China's smartphone shipments have continued the downturn seen at the beginning of the year, registering a sustained year-on-year decline. The market dilemma stems from a dual squeeze: the continuous rise in the prices of components centered on memory chips has driven up smartphone production costs; meanwhile, sluggish industry innovation coupled with the end of government subsidies has led to a sustained low willingness among consumers to upgrade their devices.
As the dividend of the government subsidies that stimulated the market fades away, and the halo of AI smartphones begins to tarnish, leading manufacturers are sprinting down an increasingly divergent path for survival.
Market Winter Becomes the New Normal, Android Camp Under Pressure
IDC data shows that in Q2 2026, global smartphone shipments reached 277.5 million units, a year-on-year decrease of 6.7%; China's smartphone market shipments were approximately 66.01 million units, down 4.3% year-on-year, marking the fifth consecutive quarter of year-on-year decline.
The most critical reason for the continued market cooling in this round is the end of government subsidies. Currently, consumers' replacement cycles have been passively extended to over 43 months. Except for foldable screens, which still retain some novelty, the iteration of traditional slab phones is severely homogenized, further exacerbating the market downturn. The government subsidy campaign from late last year to early this year was essentially a stimulant that overdraws the future.
As subsidies narrow, the purchasing power released in advance is rapidly depleted. Coupled with increasing downward pressure on the macroeconomy and residents' enhanced willingness for defensive savings, the intention to upgrade phones has turned conservative. During the 618 shopping festival this year, overall smartphone sales fell by 13% year-on-year, fully revealing the market chill.
Meanwhile, the cost pressure brought by rising memory prices is becoming increasingly prominent. Nabila Popal, Senior Research Director for Global Consumer Devices at IDC, pointed out that memory costs have surged by nearly 300% compared to the same period last year, accounting for more than 65% of the total bill of materials (BOM) cost in low-end models. Since late March, Android manufacturers, facing the continuous rise in the costs of core components such as storage, have been forced to successively raise product prices or adjust configuration plans, significantly suppressing consumers' willingness to upgrade.
Guo Tianxiang, Research Manager at IDC China, stated that the current market differentiation pattern is becoming increasingly pronounced, with the risk resilience of high-end brands significantly outperforming that of mid-to-low-end brands. Apple, Samsung, and Huawei are positioned in the high-end segment or have a high proportion of high-end products. They possess a stronger capacity to cope with rising costs and better shipment performance, driving overall market performance, while brands primarily focused on mid-to-low-end products are facing severe challenges.
Data shows that in Q2, Huawei firmly ranked first in China with a 22.6% market share, a year-on-year growth of 19.4%; Apple ranked second with an 18.1% share, a year-on-year growth of 24.4%. Meanwhile, OPPO fell by 9.7% year-on-year, vivo dropped by 11.4%, Xiaomi plummeted by 21.7%, and Honor declined by 9.5%. Among the top ten manufacturers, only Huawei and Apple achieved positive growth.
IDC expects that in the second half of 2026, the year-on-year decline in China's smartphone market shipments may expand to around 20%. Looking ahead to 2027, storage prices are unlikely to see a significant drop, and the overall market will still face severe challenges.
Is the AI Smartphone a "New Disguise" for Homogenization?
As hardware innovation hits the ceiling, AI is regarded by almost all smartphone manufacturers as the next growth engine. Market data shows that the penetration speed of AI smartphones is indeed astonishing; IDC expects that in 2026, shipments of new-generation AI smartphones in China will reach 147 million units, a year-on-year growth of 31.6%, accounting for 53% of the overall market.
Over the past two to three years, major smartphone manufacturers have bundled AI capabilities such as intelligent dialogue, image creation, and meeting minutes into their phones, promoting them as core selling points. Today, AI features have become standard on flagship new models from major brands. However, most users only briefly experience these AI features in the early stages after purchase, rarely engaging in deep, high-frequency use, resulting in extremely low actual utilization rates.
Moreover, the AI features that can truly retain users can be counted on one hand: offline voice-to-text, removing passersby from photos, and real-time translation. Most others are stunning at launch events but forgotten after purchase. Guo Tianxiang stated that AI is not yet the primary consideration for most consumers when upgrading their phones. While continuously educating the market, manufacturers must also improve the AI user experience to create essential usage scenarios that drive consumer demand.
On July 15, the cyberspace administration released the filing information for seven on-device generative AI services for mobile phones: Apple Intelligence, Huawei Xiaoyi AI Large Model, OPPO AndesGPT, vivo BlueLM On-Device Large Model, Xiaomi HyperAI, Samsung Galaxy AI, and Nubia Doubao Mobile Phone Large Model are prominently included.
Guo Tianxiang stated that the publication of the filings signifies the introduction of national standards for AI smartphones. In the next phase, the goal is to break down ecosystem barriers and promote the integration of hardware, operating systems, large models, and ecosystems, thereby accelerating the deployment of AI terminals.
However, whether AI smartphones can trigger an upgrade wave remains to be seen. Whether AI can become a core driver for phone upgrades depends on two factors: first, whether the features solve users' real pain points; second, whether cost control makes the prices affordable. Possessing both is expected to unlock some upgrade demand; otherwise, it may only attract early adopters.
What is the Second Growth Curve for Smartphone Manufacturers?
The deep freeze has arrived, and AI is not a panacea. Where lies the way out for smartphone manufacturers?
Path One: Seek profits from the high-end segment and build barriers through the ecosystem.
In the wave of rising memory prices, high-end brands have instead emerged as winners. The key to Apple and Samsung's ability to grow against the trend lies in securing memory supply in advance, coupled with the relatively low proportion of memory costs in their overall bill of materials. Xiaomi continues its push into the high-end segment. In the first quarter, Xiaomi's smartphone shipments fell by 19.2% year-on-year, but the average selling price increased by 8.2% year-on-year to 1,310 RMB, hitting a record high. Xiaomi is also continuously advancing its "Human-Car-Home" full ecosystem strategy. As the smartphone is no longer the sole source of revenue, the synergistic effect of the ecosystem is becoming a new moat.
Path Two: Redefine the smartphone with "new species" and explore cross-boundary innovations.
Against the backdrop of exhausted innovation in traditional slab phones, some manufacturers are beginning to attempt "form factor breakthroughs". The Honor Robot Phone, touted as the "world's first robot phone," is blurring the boundary between smartphones and robots. It integrates an AI brain, a movable mechanical gimbal, and an imaging system, becoming a terminal capable of autonomous rotation, tracking, and interaction.
In recent years, smartphone manufacturers have continuously explored cross-boundary innovations. vivo launched its first MR headset, the vivo Vision Explorer Edition; Xiaomi introduced its first AI glasses; and Huawei and OPPO have also ventured into AR and AI glasses. Beyond these "head-worn" devices, Huawei and Xiaomi have joined the wave of EV manufacturing, while Honor has pivoted to enter the robotics sector.
Path Three: AI Agent Smartphones to Ignite Consumer Enthusiasm
Currently, experiencing AI features still requires users to manually open apps, search, click, and navigate, meaning the operational chain has not been shortened. The industry believes that the second half of the AI smartphone era will shift from "feature stacking" to "native agents". For instance, StepFun has launched the world's first large-model native agent smartphone, the STEPX Neo; ZTE's Nubia AI agent smartphone will also make its public debut at the 2026 World Artificial Intelligence Conference.
Conclusion
The smartphone industry stands at a crossroads. Rising memory prices represent a short-term cost shock, sluggish innovation is a long-term structural dilemma, and the economic downturn acts as an amplifier of the external environment.
As the upgrade cycle extends to nearly four years, and as a smartphone transitions from a "fast-moving consumer good" to a "durable good," manufacturers must answer: what exactly are you providing? Is it better hardware, or an irreplaceable experience? Is it smarter AI, or a deeper understanding of people's lives?
The answer lies not in technical specifications, but in the real needs of users. IDC expects that the deep integration of AI technology on the hardware side is poised to re-ignite market demand for upgrades around 2028 to 2029. How to reach that point is a critical issue the industry must deeply ponder at present.
Editor/Layout: Zhu Wenfeng
Proofreader: Mei Yaxin
Supervisor: Liu Qicheng