Samsung unveils new smartphones, but virtual reality steals the show

(THE WALL STREET JOURNAL) Samsung ElectronicsCo.released its latest flagship smartphone Sunday on the sidelines of the Mobile World Congress trade show in Barcelona, getting the backing ofFacebookInc.Chief ExecutiveMark Zuckerberg,who said the companies are teaming up to push virtual-reality features in phones and social networking.

The new Galaxy S7 flagship smartphone and its curved-screen companion, the Galaxy S7 Edge, look strikinglysimilar to their predecessorsand lack fresh features to set them apart in a crowded field of Android handsets.

The smartphones come with an improved camera and longer battery life, in addition to two features dropped from the Galaxy S6 last year—removable memory storage and water resistance.

The Galaxy S7 Edge features curves on all four sides, versus the two-sided curve screen on last year’s Galaxy S6 Edge.

At the Barcelona show, however, Samsung sent the message it is serious about virtual reality, calling it “the next platform.” Nothing got that across more clearly than Mr. Zuckerberg’s appearance.

“Together this is by far the best mobile VR experience you can offer,” Mr. Zuckerberg said during the unveiling of the Galaxy S7 Galaxy S7 Edge.

Samsung also unveiled a new spherical camera called the Gear 360 that connects to Samsung’s phones to capture, view and share 360-degree video and still images. The device is designed to supplement Samsung’s Gear VR headset and software.

But the lack of a clear showstopper highlightsthe pressure that Samsung’s new mobile chief, D.J. Koh, to innovate. It also underscores the importance of moving into cheaper handsets to drive sales. Mr. Koh waspromoted to mobile chieflate last year, replacing J.K. Shin as part of Samsung’s annual management reshuffle.

In recent months, Samsung mobile executives have been talking up the importance of handsets priced between $75 and $150 in emerging markets such as India, Indonesia and Russia, where many consumers don’t yet own smartphones.

Sales growth of lower-priced smartphones for emerging markets this year is set to far outpace that of the premium smartphone market. In the fourth quarter of 2015, smartphone sales in emerging markets grew 13.5% from a year earlier, compared with just 1.5% growth in mature markets such as the U.S., according to research firm Gartner.

But competition is heating up.The larger problem for Samsung, even if it succeeds in emerging markets, is that most of its mobile earnings come from the premium segment of the market, where profit margins are richer.

Daniel Kim,an analyst for Macquarie Securities in Seoul, estimates that Samsung’s flagship smartphones account for about 70% of its annual mobile profit and about a third of the company’s total profit.

Analysts say that with innovation slowing and midrange phones matching many of the capabilities of high-end phones, there is little Samsung’s executives can do to reverse the company’s fortunes. “I don’t think they’re happy about this, but there is not much they can do about it,” Mr. Kim said. “Growth in the smartphone market is dead, and no one is free from this trend—Apple, Samsung, LG, even the Chinese.”

Pushing the Galaxy S7 could be difficult when many consumers say their existing handsets are good enough.

At the Mobile World Congress, China’s Xiaomi Corp.,ZTECorp.,LG ElectronicsInc.,SonyCorp.and a bevy of low-cost handset makers are releasing new flagship smartphones with lower price tags than Samsung’s phones.

Samsung didn’t disclose the price of its new handsets, but its high-end devices typically cost more than $600 without a carrier contract. Samsung’s mobile division has been struggling with two years of tepid demand. The poorly received Galaxy S5 and the misreading of demand and supply for the Galaxy S6 and the Galaxy S6 Edge crimped mobile earnings.

In the last three months of 2015, operating profit for Samsung’s mobile division was down 60% from two years earlier. Analysts expect Samsung’s operating profit to decline 10% this year from 26.4 trillion won ($21.5 billion) last year, and revenue to shrink for the third year in a row.

“Samsung really needs to show key carrier partners that the company is capable of bringing in notable changes to the phone in a way that would be acknowledged as innovation,” said Greg Roh, a Seoul-based analyst with HMC Investment & Securities.

He said Samsung will need to quickly introduce next-generation form factors such as foldable devices.