Samsung Electronics on Thursday reported its worst quarterly profit in two years and was downbeat about its second-half prospects, fueling concerns about its ability to protect its smartphone turf in the face of mounting competition.
With its flagship Galaxy S5 smartphone outsold by Apple's iPhone 5S in May and its cheaper devices feeling the squeeze from Chinese rivals like Xiaomi, Samsung is under pressure to come up with a new strategy to halt the slide.
For April-June, Samsung said operating profit fell 24.6 percent annually to 7.2 trillion won ($7.03 billion), matching its guidance. This marked the third straight quarter of profit decline and was the weakest result since the second quarter of 2012.
Profit for the mobile division fell to 4.42 trillion won from 6.28 trillion won a year ago, also the lowest in two years.
"Looking ahead, the second half of 2014 will remain a challenge," Samsung said in a statement, adding that profitability for the mobile division may suffer due to intensifying global competition.
Samsung's mobile division executives returned a quarter of their first-half bonuses and have downgraded to economy seats for shorter flights, evidence the South Korean tech giant is tightening its belt as it tries to regroup.
Researcher IDC said on Wednesday that Samsung's second-quarter global smartphone market share slipped to 25.2 percent from 32.3 percent a year ago, underscoring its troubles.
While the company guides for a pickup in sales for its mobile business, analysts say it needs to go back to the drawing board and revamp its product lineup to ensure it can make a sustained recovery.
Some analysts say Samsung should introduce curved displays or metal casings rather than much-criticized plastic for its premium products. Some even suggest a whole new brand to separate its high-end products from cheaper devices.
Samsung finds itself facing the first annual profit decline in three years just as Apple prepares to launch larger-sized iPhones in the fall, taking away a key differentiator for Samsung's high-end devices.
The weak second-quarter results will put the spotlight on the next Galaxy Note handset, expected to be launched in September.
"They'll have to make sure that the Note 4 isn't a flop," Counterpoint analyst Tom Kang said before Samsung's earnings disclosure.
Samsung's chips business reported a profit of 1.86 trillion won, in line with firm results for rival SK Hynix, as tight supply for DRAM memory chips for personal computers and servers boosted the bottom line.
The flat-screen panels business ran a 220 billion won profit during the April-June period, compared with a 1.12 trillion won profit a year earlier.
Samsung said it planned 24 trillion won worth of capital expenditures this year, in line with 2013, with 14.4 trillion won worth of that for its chips business. The company also plans to pay an interim dividend of 500 won per share, the same as last year.