Jonathan Cheng

As the world's biggest smartphone maker tries to keep profits up in its mainstay mobile phone business, one key challenge will come from an unexpected place: the rising costs of the components that go into its devices.

Samsung's first-quarter earnings showed that its smartphone margins remained flat from 2013, highlighting the need for the South Korean technology giant to keep costs low amid uncertain demand for its new flagship Galaxy S5 smartphone. Samsung executives said that the Galaxy S5 smartphone, which officially went on sale in early April, was received positively by the market and would likely do better than the previous model, without elaborating.

But analysts said margins could well slip this quarter. The company packed its latest phone with pricey features -- such as an improved camera, a fingerprint scanner and a heart-rate sensor -- hoping to give it a leg up against a crowded field of rivals that, like Samsung's devices, run Google's Android operating system.

"Despite increasing sales volumes, a decline in profits seems inevitable due to falling prices and intensifying competition," said Greg Roh, an analyst with HMC Investment Securities in Seoul. Not helping Samsung's cause is the company's continued reliance on its massive advertising budget to keep its sales humming, and the rising cost of making its own devices.

As Samsung Electronics's best-selling smartphones face increasing competition from a horde of Chinese lookalikes, one of the South Korean giant’s key goals has been to translate demand for its devices into interest for Samsung’s homegrown software and services. But a new study shows how far the company still has to go.

Strategy Analytics, a Newton (MA)-based research firm, said in a report that US users of Samsung’s devices spend little time on its own messaging, music and voice-activated applications including apps like ChatON, the South Korean company’s answer to services like WhatsApp, Line and Viber.

The report said that US users of Samsung’s Galaxy S3 and S4 smartphones logged an average of six seconds per month using ChatON, compared to more than 11 hours per month on Facebook and about two hours per month on Instagram. On average, users spent just seven minutes during the month on an array of Samsung apps -- including ChatON, voice-activated search app S Voice and app store Samsung Hub. By contrast, they spent an average of 149 minutes on just three apps by software partner Google -- its app store Play Store, video-watching site YouTube and its flagship search engine.