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Samsung Electronics to record first annual profit fall in 3 years

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Samsung Electronics on Thursday said its fourth-quarter profit likely fell 37.4 percent, confirming its first year of annual profit decline since 2011 as it struggles to retain its crown as global smartphone leader.

The South Korean tech giant lost market share for three consecutive quarters up to July-September, and analysts say the trend likely continued in the October-December period thanks to competition from Apple's new iPhones and cheaper Chinese rivals like Xiaomi.

Samsung said its fourth-quarter operating profit is likely to be 5.2 trillion won ($4.74 billion), beating a mean forecast of 5 trillion won from a Thomson Reuters I/B/E/S survey of 44 analysts.

The outlook means Samsung's annual profit will probably be 25 trillion won, the lowest since 2011, although it marks a rebound from the third-quarter's 4.1 trillion won profit, which was the firm's lowest quarterly result in more than three years.

Several analysts tipped the semiconductor division to have earned more than the cash cow mobile business in October-December, buoyed by healthy demand for memory chips from personal computers and smartphones. The company did not provide a breakdown of its earnings figures in Thursday's outlook.

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The mobile division accounted for about 68 percent of Samsung's profit at its peak in 2013, but this had dropped to about 44 percent in the July-September quarter as its high-end offerings fell short of expectations and lost out to Apple's iPhones. Meanwhile buyers in booming emerging markets like China have opted for cheaper devices rather than Samsung's flagship Galaxy series.

A person with direct knowledge of the matter told Reuters that the mobile division's fourth-quarter profit improved slightly from the previous quarter due to a pickup in sales of premium products like the Galaxy Note 4 and lower marketing costs. But overall smartphone shipments fell, the person added.

Analysts say the company's new focus on mid-to-low tier smartphones will squeeze margins and cap profits, offsetting the benefits of greater sales.

The median forecast from a Thomson Reuters I/B/E/S survey of 52 analysts tips a 23.8 trillion won profit for 2015, which would mean a second straight annual decline if Thursday's profit guidance is confirmed.

While Samsung is talking up its internet of things-related businesses such as the smart home as the next big thing, that industry likely will struggle to make meaningful earnings contributions in the near-term.

"Expectations have to be lowered now," HDC Asset Management fund manager Park Jung-hoon said ahead of Samsung's guidance.

"What Samsung needs to show under the new regime of Vice Chairman Jay Y. Lee is stabilization, and that includes earnings."