Samsung Electronics on Thursday reported its worst quarterly profit in two years and flagged uncertain earnings prospects for its key handset business. In a guidance released by the company, it expects July-September handset shipments to pick up by 10 percent from the previous quarter and said it planned to release a new premium smartphone employing a new design and material.

With its flagship Galaxy S5 smartphone outsold by Apple's iPhone 5S in May and its cheaper devices feeling the squeeze from Chinese rivals like Xiaomi, Samsung also vowed to revamp its mid-to-low-tier product lineup with more aggressive pricing and a focus on a smaller set of products.

"Considering intensifying competition of price and specifications as well as the release of new competing models, it is difficult to expect earnings to improve from the second quarter," Senior Vice President Kim Hyun-joon said about the mobile business during a conference call with analysts.

For April-June, Samsung said operating profit fell 24.6 percent annually to 7.2 trillion won ($7.03 billion), matching its guidance.

Profit for the mobile division fell to 4.42 trillion won from 6.28 trillion won a year ago -- the lowest in two years.

Samsung warned that business conditions for the second half would remain challenging, deepening investor concerns about its prospects.

IDC said on Wednesday that Samsung's second-quarter global smartphone market share slipped to 25.2 percent from 32.3 percent a year ago, underscoring its troubles.

Analysts expect Samsung to introduce curved displays or metal casings rather than much-criticised plastic for its premium products.

"They'll have to make sure that the Note 4 isn't a flop," Counterpoint analyst Tom Kang said before Samsung's earnings disclosure.

Samsung's chips business reported a profit of 1.86 trillion won, in line with solid results for rival SK Hynix Inc, as tight supply for DRAM memory chips for personal computers and servers boosted the bottom line.

Samsung's guidance on its memory business was bullish, tipping its 2014 shipment growth for both DRAM and NAND memory chips to outpace the broader market.