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What is hurting Samsung sales?

Samsung's profits took a hit in the third quarter, with the company saying that its earnings are likely to "decrease substantially" because of mounting competition in smartphones.

Not only was the Korean technology giant's profit the lowest in three years, but the company says that uncertainty remains for the fourth quarter.

Even though unit shipments "increased marginally," two factors combined to pummel Samsung's financial performance. One was slowing sales of high-end phones. That should offer little surprise. Apple (AAPL) released its iPhone 6 models in September and set new sales records. Over the first weekend the devices were for sale Apple sold 10 million new iPhones. In comparison, Samsung took a month to reach 10 million units of the Galaxy 4S last year and 11 million units of the S5 in 2014.

Samsung sales could rebound after excitement over the iPhone 6 dies down and when Samsung release its next phone.

Samsung's new flagship tablet, the Galaxy Tab... 02:12

Perhaps of greater concern for Samsung is that prices are falling for older smartphones and what that bodes for competing in China. Chinese consumers are highly price-sensitive, which is one reason Apple has not made deeper inroads in the country's massive smartphone market.

Another factor in China is the competition from domestic manufacturers such as Lenovo and Xiaomi, which offer low-priced equipment. That is likely what caused the price drop in older phones. Compounding that pressure is cellular carriers have stopped offering subsidies to hardware manufacturers.

"[C]arriers in China will gradually stop subsidizing smartphone sets directly, and focus more on consumer call charges, which is expected to affect the current inventory of name brands," said research firm NDP DisplaySearch in a statement. "These effects will also accrue to upstream industries, adding to declining smartphone display average selling prices in the open market."

That suggests manufacturers like Samsung and Apple that have looked to China as an important component of their growth strategy will have to reassess the market possibilities.

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