AI smartphones set to transform mobile industry by 2028

According to a new research report from Canalys, the advent of AI-capable smartphones is set to revolutionise the mobile industry. Significant advancements in generative AI technologies are poised to redefine consumer interactions and operational efficiencies within the next three to five years.

AI capabilities integrated directly into smartphones are anticipated to provide a significant competitive edge to early adopters in the market. The Canalys report emphasises the necessity for hardware companies, including chipset and smartphone manufacturers, to prioritise the enhancement of on-device AI functionalities. This involves investing in advanced hardware, developing robust software ecosystems, innovating in AI-driven revenue models, and ensuring transparency in operations.

The report presents five key insights shaping the future trajectory of AI-capable smartphones. Foremost among these is the evolving user experience expectation. Critical hardware components such as ASICs and GPUs need to be optimised to effectively manage on-device AI models. As technology evolves, the differentiation of AI smartphones will increasingly hinge on their ability to integrate and update AI functions seamlessly.

Significant market growth is expected for AI smartphones. By 2024, 16% of global smartphones are projected to be AI-capable, expanding exponentially to 54% by 2028. The segment's growth is underpinned by a 63% compound annual growth rate (CAGR) from 2023 to 2028, driven by consumer demand for enhanced functionalities like AI agents and on-device processing. This transition is expected to begin with premium models and gradually extend to mid-range devices, reflective of broader trends towards advanced mobile technologies.

Industry experts such as Apple, Google, and Samsung, alongside Chinese manufacturers HONOR, OPPO, Xiaomi, and vivo, are at the forefront of integrating AI capabilities into their smartphones. These companies are employing varied strategies, from developing proprietary AI chips to bolstering ecosystem integrations to leverage AI for improved user experiences. These strategies involve substantial investments in both hardware and software to sustain a competitive edge.

The integration of on-device AI is creating new revenue models beyond traditional smartphone sales. AI capabilities enable new business paradigms, including subscription-based services for premium AI features, personalised advertising, and enhanced app functionalities that utilise on-device processing. These innovations are expected to diversify revenue streams and drive deeper customer engagement, offering continually improving and personalised user experiences.

Consumer interest in AI-driven functionalities is on the rise, as highlighted by the Canalys Consumer AI Inclination Index. However, this burgeoning interest is accompanied by concerns over privacy and data security. Ensuring transparency and responsibility in AI implementations is critical to addressing these concerns. Clear communication regarding data usage, the functionality of AI features, and strict adherence to privacy regulations are essential in building consumer trust and acceptance. Addressing these concerns proactively can mitigate apprehension and foster a more receptive market environment.