MBSB Research said Thursday that it has maintained its neutral stance on Malaysia’s technology sector as it viewed that the smartphone industry is anticipated to experience a challenging 2026.

The research house said in a note that for 2026, the market is expecting the smartphone market to contract between 0.9 percent year on year to 2.1 percent year on year.

This was mainly due to the ongoing shortage of memory chips. It is noted that memory chips are biggest bottleneck that may affect the artificial intelligence (AI) boom.

“Taking cue from the 4Q25 performance, the smartphone market may see a marginal improvement in 2026,” said the research house.

According to IDC, the global smartphone shipment saw an
increase of 2.3 percent year on year to 336.3 million units. This is despite the ongoing memory shortage crisis.

The demand was supported by sustained premium growth, strong momentum in foldables, and accelerated pull-in demand as consumers anticipated upcoming price hikes.

Meanwhile, global memory producers such as SK Hynix, Samsung Electronics and Micron Technology are aggressively shifting their production away from the consumer market.

Notably, Micron Technology also announced that it plans to stop selling memory for the consumers business by February 2026 to focus on meeting demand for high-powered AI chips.

This will enable Micron to improve supply and support for its larger, strategic customers in faster-growing segment.

SK Hynix, on the other hand, has its entire 2026 production capacity for HBM, DRAM and NAND already sold out to fulfil its AI-driven contracts.

According to MBSB, the low-end smartphone segment is expected to be impacted the most.

“The escalating cost of the memory component could lead to higher smartphone prices. This is further exacerbated by the potentially reduced shipment,

“Thus, the ‘low-price’ strategy to lift demand is no longer feasible,” said the research house.

However, it noted the flagship phone model segment could be more resilient. Apple, for instance, could leverage on its strong supply chain and high margin products to minimize issue.

Meanwhile, Samsung, may mediate by relying on its own internal memory output i.e. via Samsung Electronics.

It is noted that the latter is the global leader in overall memory market. This will enable Samsung to have a more competitive product pricing as well as healthier offering as compared to its peers.

While raising average selling price, especially for the low-end segment, would be the easiest approach, MBSB noted it may lead to consumer holding back the purchases.

Thus, some of the potential remedies include: i) downgrade specification, especially the memory specification, ii) streamlining of product portfolio, with a greater focus on the mid-to-high variants, iii) enticing consumers to upgrade to higher specification variant iv) software optimization to cut down on the memory usage as well as v) securing advance order of the necessary components.

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