Smartphone retailers are bracing for higher prices as a surge in demand for AI-powered microchips limits supply across the electronics manufacturing sector.
The rapid expansion of data centers around the world to support the growing use of AI has absorbed much of the supply of memory chips. Rising demand has tightened supply for smartphone makers, which rely on chipmakers such as Samsung and SK Hynix, and pushed up component prices.
PayJoy, a device finance business, predicts that smartphone prices will rise from the second quarter of 2026.
“Demand for AI chips has gone through the roof, which is now putting pressure on the chips needed in mobile phones,” PayJoy’s head of business development Sean Durant told Business Day.
Supply constraints on high-end components impact the business of companies like PayJoy, which aim to put technology into as many hands as possible.
PayJoy is a financial technology (fintech) company that provides smartphone finance to underserved consumers in emerging markets, including South Africa.
Demand for AI chips is through the roof. That’s now putting pressure on the chips needed in cell phones.
— Sean Durant, Head of Business Development, PayJoy
The service allows consumers to purchase a smartphone with a minimal down payment and pay off the remaining balance over three, six, or nine months.
For mobile phone operators such as Vodacom, the situation threatens the company’s drive to increase the number of internet-enabled devices using its networks, and thus data usage.
The group has a smart device penetration rate of 68.6%, with 19.6 million smartphones added in the year ending March. However, more than 90 million of the group’s total 237.3 million customers do not have a smartphone.
“The memory cost issue will fundamentally increase the cost of mobile phones,” Vodacom CEO Shamir Joosab said in announcing the group’s earnings report.
The company has stocked devices at older prices and is scrambling to get more low-cost devices that can go online, he said.
“But the basic cost of smartphones will go up. We expect some costs, such as PCs and laptops, to more than double in some cases, due to things like the cost of memory. For smartphones, we haven’t seen the full impact yet, but we expect prices to rise further,” Jusab said.
PayJoy has a customer base of over 20 million people and its South African operations have grown to around 2 million people in four years.
Durand said PayJoy’s financial model will help alleviate the immediate “pinch” of rising retail prices for the average consumer.
The group’s platforms and properties “soften it a bit more” by offering a manageable way to absorb increases through flexible rental installments, rather than paying large sums of cash all at once.
The most important market segment for PayJoy is devices priced between R2,000 and R3,500. The company offers phones priced up to R15,000, but that price range accounts for a small portion of its sales.
Durand highlighted the paradox that at the same time consumer expectations for high-end features are increasing, manufacturing costs are also rising. Manufacturers are struggling to maintain the R2,000 “tolerance level” while packing enough technology into their phones to satisfy savvy users.
Once users realize the benefits of mobile connectivity, they quickly start demanding better hardware.
“realization [of budget-conscious consumers] I need something with a slightly larger processor. I need something with more memory. We need something with a bigger screen,” he said.
