The South Korean company, which climbed from smartphone laggard to top seller in the past three years, had prided itself on responding quickly to market demand and ability to tailor handsets to the needs of users and mobile carriers around the world.
But its rapid success with a product category pioneered by rival Apple Inc is undergoing an equally stunning reversal. Earnings from Samsung's mobile phone business began declining this year, undermined by lukewarm sales of the Galaxy S5 smartphone and the competitive onslaught from cheaper local brands in China and India. Apple also eroded Samsung's leading market share in developed nations.
In a rare acknowledgment of a misstep, the company's head of investor relations told an earnings conference call that Samsung had lagged behind changing market conditions. The company's response "was not quick enough," said the executive, Robert Yi.
It plans a significant change in smartphone strategy for next year to seek more "efficiency," implying that the number of new handset models might be reduced. That will allow the company to better focus on each product and to purchase components at cheaper prices to save costs.
Unlike Apple's take it or leave it approach, Samsung boasted that it gave more choice to consumers, launching at least two flagship models per year and making smartphones in a variety of screen sizes and various features.
The drop in earnings from the mobile business battered the South Korea company's quarterly net profit, which tumbled 49 percent to 4.2 trillion won (USD 4 billion). That was the lowest since the first quarter of 2012, but above market expectations. Analysts polled by FactSet had predicted net income of 3.7 trillion won.
Operating income from its mobile business, which previously had contributed more than 60 per cent of its entire earnings, fell to 1.75 trillion won (USD 1.66 billion) from 6.7 trillion won a year earlier.
Quarterly sales fell 20 per cent to 47.4 trillion won while operating income shrank 60 percent to 4.1 trillion won. Samsung warned earlier this month that its handset profit had declined despite a marginal increase in shipments. Analysts said the Galaxy S5 smartphone launched in April did not sell well while many consumers held off upgrading their phones, instead waiting for new iPhones.