Samsung is warning its quarterly earnings will be weaker than expected.

That puts the South Korean company on track for its worst results in two years.

One problem is that while smartphones drove Samsung to record profits last year, the market is maturing and prices are dropping.

It is also facing mounting competition from cheaper Chinese rivals, such as Huawei and Lenovo, and the looming threat of Apple’s next iPhone.

The company said it “cautiously expects” a better outlook for the third quarter with the release of new smartphones, lower marketing costs and a seasonal lift in demand for its memory business.

“The earnings deliver a harsh reality check to Samsung that it is not Apple, but Samsung. Its strategy of selling phones at expensive prices will not work anymore, as Chinese rivals also offer good enough phones at much cheaper prices,” Lee Seung-woo, a technology analyst at IBK Securities, said.

“Samsung needs to review its smartphone strategy,” he added.

Some analysts said Samsung may have no choice but to slash prices for mid-to-low cost devices, where growth is stronger, to go after Chinese rivals.

While that would help defend market share it would also hurt profits, curbing its earnings recovery in the short term.

with Reuters