AI Demand Triggers PC Market Downturn Warning

The global demand for AI infrastructure is creating a ripple effect that is severely impacting the consumer electronics market. A new report highlights that the scramble for memory chips used in data centers is starving the PC industry of essential components, leading to fears of a major market downturn.

Memory manufacturers have pivoted production toward high-bandwidth memory (HBM) and high-capacity DDR5, leaving conventional DRAM and NAND in short supply. This shortage is driving up costs for PC manufacturers, forcing price increases on consumers. The timing is particularly damaging for an industry hoping that 'AI PCs' would spark a post-pandemic recovery.

The root of the issue lies in a strategic pivot by major memory makers. Instead of expanding production of conventional DRAM and NAND used in smartphones, PCs, and other consumer electronics, manufacturers have shifted focus to support the booming AI sector.

Production lines are now prioritizing memory used in AI data centers, specifically high-bandwidth memory (HBM) and high-capacity DDR5. This redirection of resources has created a scarcity of the standard memory components that PC makers rely on, naturally driving up the price of the RAM that remains available.

The impact has already been felt downstream. One consumer-facing RAM brand has reportedly ceased operations due to these pressures. For PC manufacturers, the rising component costs mean they must either absorb the loss or pass it on to the customer to stay financially viable.

The International Data Corporation (IDC) has modeled the potential fallout from this memory crunch, painting a grim picture for the near future of the PC industry.

In its worst-case scenario analysis, the IDC predicts that PC shipments could shrink by as much as 8.9 percent in 2026. This contraction is a direct result of the high cost of memory components forcing prices upward.

Consumers should prepare for significantly higher price tags. The report estimates that if the pessimistic scenario holds true, PC prices could rise by 6 to 8 percent next year.

Real-world examples of this pricing pressure are already emerging. Framework, a modular PC maker, has already adjusted the pricing on some of its laptops and parts. The company noted that "further cost and price increases are highly likely over the next months," signaling that the trend is far from over.

The current situation presents a cruel irony for the PC market. The industry has been banking on the release of so-called 'AI PCs'—computers equipped with neural processing units (NPUs) capable of running AI models locally—to pull the sector out of its post-pandemic slump.

However, these very machines are the most vulnerable to the current supply constraints. AI PCs require significantly larger amounts of RAM to function effectively. Consequently, they are hit hardest by the skyrocketing memory prices.

Instead of serving as a savior for the industry, the AI boom is currently acting as a headwind, making the necessary components for these advanced computers more expensive and harder to source.

The memory shortage is not limited to personal computers. The smartphone industry is also bracing for impact.

The IDC forecasts that in the worst-case scenario, the average selling price of a smartphone could increase by 6 to 8 percent. Additionally, global smartphone shipments could contract by as much as 5.2 percent.

Not all companies are equally exposed to this volatility. The IDC notes that industry giants like Apple and Samsung possess significant cash reserves and have established long-term supply agreements. These advantages allow them to weather higher RAM prices and maintain price consistency for a year or two.

For smaller manufacturers and the broader market, however, the outlook is challenging. The near-term future appears to be one of higher costs and reduced risk-taking as companies navigate this expensive supply crunch.