To turn around its fortunes, Samsung also has to woo consumers in countries such as China and India with an improved portfolio of low-cost smartphones. As sales in Western countries have stalled, emerging markets have taken over as growth engines.
For example, in India just 6 percent are expected to own a mobile phone in the first half of the year, according to Strategy Analytics. India also added 28 million mobile subscribers during the first quarter, the largest increase of any country in the world.
In both China and India, Samsung's smartphone sales are suffering at the hands of local companies.
"Consumers buying smartphones from local brands have been a trend from the last four or five years, and is snowballing at the moment," Mawston said.
In China, Xiaomi was either neck and neck with Samsung or on top during the second quarter depending upon whom you believe. In India, Micromax has already surpassed Samsung's overall phone sales and is catching up on smartphones.
The sheer number of products Samsung is offering has become confusing to consumers and its low-end smartphones are also too expensive.
"The prices are almost 30 to 40 percent higher than what Chinese and Indian brands would charge for smartphones with similar specifications," Shah said.
There are several reasons for the progress companies like Xiaomi and Micromax have made. One is the growing availability of so-called reference platforms or designs. Even Google is getting involved with Android One, a program designed to help vendors build high-quality smartphones priced under US$100. The first products will come from Micromax and other Indian smartphone manufacturers such as Karbonn Mobiles and Spice this fall.
What the reference platforms have done is lower the bar for developing smartphones by providing the components and resources that manufacturers need to quickly and cheaply put out devices. So even vendors that lack the huge research and development departments found at Apple or Samsung can still offer competitive products.
To better compete in this segment, Samsung has to make some big changes, like consolidating its portfolio and accelerating the refresh cycle, according to Shah. It also has to cut prices and offer more high-end features on its cheaper models, according to Mawston.
Regardless of what happens next, the big winners will be consumers who, thanks to increased competition, get access to more advanced smartphones at better prices.
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