Electronics makers to cut output by 10-20% amid memory chip squeeze

A global memory chip crunch is forcing Indian electronics makers to cut output and raise prices, with premium devices taking priority over budget products

A shortage in the supply of memory chips used in electronics manufacturing is forcing original equipment manufacturers (OEMs) and electronics manufacturing services (EMS) firms in India to recalibrate production, with some players cutting output by 10-20 per cent for the remainder of the year. 

The shortage is affecting the production of smartphones, televisions, servers, set-top boxes and routers, as manufacturers grapple with both rising costs and tightening availability of memory components. 

“Most consumer electronics categories are being impacted. Mobile phones will be hit the hardest, followed by personal computers, servers and set-top boxes. Other consumer electronics such as TVs, and even automotive-grade memory availability, are also facing shortages,” said Tarun Pathak, research director at Counterpoint Research. “Overall, production estimates will decline by 10-15 per cent in volumes across consumer electronics categories, with manufacturing taking an equivalent hit,” he added. 

Memory chip prices have surged four to five times over the past few quarters, prompting several manufacturers to reduce production of entry-level devices and redirect capacity towards premium products with higher average selling prices (ASP) in an attempt to protect margins. 

“Rather than implementing outright production stops, OEMs are responding through a ‘survival of the premium’ strategy, using configuration adjustments, tighter cost controls and price increases to offset shrinking margins,” said Ashok Chandak, president of the Indian Electronics and Semiconductor Association (IESA). 

“This shift is forcing a market recalibration where low-margin models are being quietly phased out or production cuts are being implemented, leaving consumers to either pay an ‘AI tax’ for new hardware or extend the lifecycle of their current devices to a record-breaking four or five years,” he said. 

Chandak added that the entry-level consumer electronics market was facing acute pressure as memory costs now account for nearly 25 per cent of the total bill of materials, effectively squeezing the viability of low-end smartphones and sub-$500 laptops

Mahendra Nahata, managing director of telecom equipment maker HFCL, said: “Memory availability is impacting all telecom and IT products. Since we make our routers fully in-house, we’re arranging alternate supplies from multiple OEMs for memory components. For now, we have secured availability for the next six to eight months.” 

Industry executives said the disruption is unlikely to ease soon. Global memory manufacturers are increasingly prioritising production of high-bandwidth memory (HBM) chips used in artificial intelligence workloads, reducing capacity for conventional DRAM and NAND memory chips and tightening supply further. 

HBM chips command gross margins of more than 60 per cent, making them significantly more lucrative for manufacturers than traditional memory products, according to industry insiders. 

Analysts expect supply constraints and production cuts to persist through 2026 and 2027, with normalisation in memory supplies unlikely before 2027. “This situation is not going away before the end of 2027 or early 2028. We do not see any respite from rising memory prices. OEMs manufacturing phones, PCs, servers and set-top boxes will be hit the hardest. In most of these categories, price hikes over the coming quarters could be around 20-25 per cent,” Pathak said. 

Market watchers said companies such as Apple and Samsung Electronics were expected to face fewer disruptions than smaller players because of their dedicated supply chains, long-term supplier contracts and stronger ability to absorb higher input costs or pass them on to consumers. 

A Noida-based executive whose manufacturing operations have been directly affected by the shortage said the share of memory in the bill of materials had jumped from 7-10 per cent to nearly 35 per cent within the past four to six months, with little indication of relief through the rest of the year. That, the executive said, leaves manufacturers with little choice but to pass on higher costs to brands, which will ultimately translate into higher prices for consumers. 

“Production is being reduced by at least 20 per cent across product lines wherever memory is used because the issue is no longer just pricing, but availability. Memory producers are locking in orders months in advance, but pricing is still being revised month to month. Earlier the concern was rising prices; now the challenge is simply ensuring memory is available for production,” the executive said, requesting anonymity. 

A senior executive at a major EMS player in Delhi NCR said companies heavily exposed to IT hardware manufacturing would face greater disruption than diversified manufacturers. “Those making phones, laptops and servers will be under pressure to secure supplies. But companies with exposure to automotive, industrial and medical equipment manufacturing may see a more limited impact,” the executive said. 

Another senior executive at a leading EMS company in India said the industry was monitoring the situation closely. “It is a challenge. We have secured supplies for now, but we are watching developments carefully in case the situation escalates and begins to affect production cycles,” he said, declining to be named. 

Despite the anticipated decline in production volumes, industry executives said revenues may remain relatively protected as manufacturers prioritise memory allocation for higher-priced products. “Production volumes may decline, but the value generated by OEMs could remain intact. Memory chips will increasingly be prioritised for premium devices rather than low-cost or entry-level products,” said Pankaj Mohindroo, chairman of the Indian Cellular and Electronics Association (ICEA), which represents companies including Google, Foxconn and Tata Electronics. 

Executives said rising memory costs are already being passed on to consumers. In smartphones, retail prices have increased by 15-30 per cent over recent months, with several brands continuing to push through further hikes.