Samsung has a reason to make fewer Galaxy phones, and it's a risk worth taking

The AI buildout has become the goose that lays golden eggs for memory makers like Samsung. The exponential rise in memory chip prices has led to record profits for Samsung, which is now projecting over $80 billion in operating profit for Q3 2026.

On the flip side, higher memory chip prices lead to higher consumer prices for products like smartphones, tablets, and more. It also puts incredible stress on the margins of companies that make those devices, Samsung's mobile division included.

It puts them in a difficult position. They either raise the prices even more, which would reduce demand, or they cut production and make fewer phones to try and sustain margins.

One would think Samsung will be worried about being stuck between a rock and a hard place, but the company has made a conscious decision. It will let the mobile division take the pain for as long as the memory chip gravy train is running.

The mobile division is already on track for an annual loss this year. That's despite repeated price hikes for existing devices, as well as higher prices for its new phones.

Samsung's mobile division doesn't get any preferential pricing for memory chips from its semiconductor division, so it's fully exposed to the upheaval in the market.

Perhaps that's why a decision has reportedly been made to cut Samsung's Q4 2026 smartphone production by as much as 30%. Rumors already suggest that next year's Galaxy S27 lineup will be more expensive than the models it replaces. So it's fine with pulling both levers as long as the memory chips keep the dollars coming in.

What the mobile division pays Samsung's memory business isn't disclosed. But it's easy to understand why Samsung is willing to go down this road. Every chip that it could sell at a preferential price to the mobile division is one that it can easily sell to another customer at record margins.

Since both divisions exist within the same Samsung Electronics entity, the entire company itself is extremely profitable in the current environment, so it's not like the mobile division's troubles are having any significant impact on its bottom line.

Samsung takes great pride in being the world's top smartphone vendor by volume. But at least for now, it's fine with sacrificing market share.

Its smartphone shipments will decline by tens of millions of units this year. Much of the volume reduction will be focused in the low-end and mid-range segments, where it already faces significant competition from Chinese rivals.

So it won't be surprising if, in the coming quarters, it emerges that Samsung's lead at the top of the market has reduced while some of its rivals catch up. The company's current priority is abundantly clear: it wants to maximize earnings from the memory super cycle before more supply comes on to the market by 2028.

While this seems like the right business decision, it's still a risky bet. Galaxy phones anchor Samsung's ecosystem ambitions. Fewer phones sold now also means a smaller installed base later.

There's also no guarantee that the low-end and mid-range share given up to rivals will return once memory prices come down and Samsung can resume phone production at full capacity.

However, there's merit to the argument that this is a bet Samsung can afford to take. It's been able to take on rivals in the smartphone market across all price levels and come out ahead for decades now.

The company has a loyal user base, several popular and successful lineups that offer good value for money, as well as the capability to quickly ramp up production again once the situation cools down.

Until that happens, though, Samsung has fewer reasons to make as many Galaxy phones as it did in the past. As consumers, we just have to weather the storm as Samsung takes full advantage of the generational opportunity that the memory market currently offers.