In a surprisingly downbeat forecast, Samsung Electronics expects to make an operating profit of 8.3 trillion won (£4.8bn) in the last three months of 2013, down 18% from the previous quarter and a 6% drop on the year before.
Analysts say the consumer electronics company, which has 32% of the global smartphone market, compared to Apple’s 12%, has suffered from lower profit margins for handsets. The South Korea-based electronics giant also incurred a one-off cost of £609m after paying out bonuses to staff to mark 20 years since its chairman set Samsung on the road to becoming a global behemoth.
Samsung is also facing more competition in China, a key market. Samsung is currently the biggest smartphone operator in the country with sales of 70 million units last year, or 20% of its total shipments. However, it will come under pressure from next week when Apple makes its phones available in China's $80bn market via China Mobile.
In a further challenge, Apple is also expected to introduce larger screens later this year to rival the Samsung Galaxy, which currently has a screen 19% wider and 10% taller than the iPhone 5.
The growing competition from Apple means Samsung is bracing itself for its weakest smartphone profit growth this year since it started making the devices in 2007. As Samsung's mobile business earns two thirds of the company’s profit, this is likely to weigh on the firm’s overall profits in 2014.
Samsung unveiled the new NotePro at the CES in Vegas
The South Korean company is now focusing on tablets. At the Consumer Electronics Show in Vegas this week, it unveiled two new tablets, the NotePro and TabPro, and claimed that in 2014 it will take over leadership in the category from Apple.
Samsung and Apple have been at each others’ throats for years over various copyright infringements. In November, Samsung was ordered to pay its rival $290m (£180m) because of designs Apple says it ‘copied’.
In the past year, Samsung’s shares have dropped from 1.58 million won to 1.3 million won.
The company’s final results for the October-December quarter will be released later this month.