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Samsung freezes salary increases as it prepares for mobile war

The company's moratorium on raises this year for executives now extends to all employees in South Korea, as the electronics giant focuses on facing its troubles in the mobile market.

What's next for Samsung? Perhaps an edgy Galaxy S6, along the lines of the Galaxy Note Edge (pictured). Sarah Tew/CNET

Samsung Electronics' employees will be working hard to regain some of the company's losses in the mobile space this year, but that won't translate to more money in their pockets.

Samsung has decided to freeze all wages in 2015 for workers in South Korea, marking the first time the company has done so in six years, according to Reuters, which confirmed the news with the technology giant. Samsung previously announced that executives would not be receiving a wage increase in 2015, but the company has now extended that to all of its employees there, the report says. Samsung employs 96,945 in South Korea (as of December) and 326,000 people worldwide.

The troubles facing Samsung are major and largely center on the core of its operation: mobile. Samsung announced last month that during the fourth quarter, its operating profit fell 36 percent to 5.3 trillion won ($4.9 billion). It was the fifth consecutive decline in year-over-year operating profits and prompted the company to say it would engage in an array of investments and in some areas, belt-tightening, to right the ship.

Chief among Samsung's concerns is its mobile business. Samsung's IT and Mobile Communications division, which typically accounts for two-thirds of its revenue, watched as its fourth-quarter operating profit fell 64 percent to 2 trillion won ($1.8 billion). Sales in the division tumbled 22 percent, to 26.3 trillion won ($24.2 billion), with mobile dropping 23 percent, to 25 trillion won ($23 billion). The company warned investors that competition will only "intensify" in the coming quarters.

Samsung has acknowledged that it's been knocked back by competitors worldwide, and especially in China where companies like Xiaomi and Huawei continue to steal market share. Last year, Samsung said it was forced to spend significantly more on marketing to boost unit sales. Also last year, the company said it would cut the number of smartphone models offered in 2015 by up to a third to dedicate more of its resources on devices it believes will sell the best.

Although Samsung executives have said that with the right strategy, they can turn things around, not everyone is so sure. The company is losing its footing in developed countries, and and its handsets are being bypassed by consumers in crucial countries like China and India, where the number of people buying handsets for the first time is soaring. Samsung's issues have become so troublesome that some industry analysts believe things could only get worse.

"Samsung has had a very high-growth, very large-scale business over the past few years," Jackdaw Research analyst Jan Dawson told CNET last year. "But there isn't much evidence that suggests they'll have a future that looks like their past."

By placing a moratorium on employee wage increases, Samsung is controlling the one thing that it actually can: costs. How it does commercially is ultimately up to the consumer. And so far, things aren't looking up for Samsung when it comes to mobile. In the fourth quarter, Apple's iOS platform accounted for 89 percent, or $18.8 billion, of all smartphone operating profits. The remaining 11 percent -- a little over $2 billion -- was divvied up among all of the Android makers worldwide.

That's precisely why so much is riding on the company's Unpacked event on March 1. The event is expected to play host to the unveiling of the long-awaited Galaxy S6, but it could also be the place where Samsung investors try to find out what the future holds. Unpacked is an opportunity for Samsung to get off on the right foot. If the company fails in that effort, Samsung might have more to worry about than wage freezes.

Samsung did not immediately respond to a request for comment.