Samsung Electronics warned its operating profit could fall a two-year low in the second quarter as it grapples with a slowdown in its smartphone business among other challenges - so are the South Korean tech giant's best days behind it?
The company on Tuesday said operating profit for the April-June quarter likely fell 24.5 percent on year to 7.2 trillion ($7.12 billion) on slower smartphone market growth, sluggish tablet sales and a stronger won.
The guidance, released ahead of full quarterly results due later this month, is below estimates from a Reuters poll for an operating profit of 8.3 trillion won.
"Samsung is running into some serious headwinds unless they do some dramatic things they face big longer-term challenges," Bob O'Donnell, founder and chief analyst, Technalysis Research told CNBC.
"They are a hardware-focused company, that's their lifeblood. But they need an alternative. If we see the hardware market overall peak in the next year or two, and they don't have a software and services story that's a problem." he added. The company's phone division accounts for over 70 percent of its total earnings.
Samsung faces tough competition in the high- and low-end of the smartphone market, with the swift rise of Chinese smartphone makers such as Xiaomi and Lenovo.
The company's global smartphone market share declined for the first time in four years in the first quarter, falling to 31.2 percent from 32.4 percent a year earlier, according to research firm Strategy Analytics.
Samsung's diverse product lineup - with both premium and low cost offerings - has long been cited as a key differentiator that gives the company an edge over competitors.
However, its low and mid-range smartphone business is struggling amid a lack of product refreshes, say analysts.
"The problem is their product portfolio hasn't been refreshed recently. They had really flooded the channel with mid and low-end products and are realizing a lot of them haven't sold. Now operators and retailers aren't buying more phones and they are stuck with lots of old models," said Mark Newman, an analyst at Sanford C. Bernstein.
As a result, Samsung took a hit to discount those phones and flush them out of the market, he said.
While Samsung's smartphone business will remain challenging, Newman, says it isn't all gloom and doom. He expects Samsung's component business to remain a bright spot for some time.
Newman maintains a 12-month price target of 2 million won for Samsung's stock - 55 percent higher than current levels.
"The company has $60 billion cash on the balance sheet… If they were to use their cash hoard to actually buyback shares then we could go well above 2 million won," he said. Samsung shares traded flat on Tuesday at 1.29 million won.
Mehdi Hosseini, senior analyst at Susquehanna Financial Group is also optimistic about Samsung's stock performance.
"We maintain our buy rating [on Samsung's stock] for a few reasons. Firstly the stock is cheap, secondly the company is expected to be more shareholder friendly by providing more of a capital return starting next year, and thirdly Samsung is expected to come out with a flexible display later this year and that could be a game changer," he said.