By Min-Jeong Lee And Jonathan Cheng 

SEOUL-- Samsung Electronics Co. offered signs Thursday that the worst was likely over for its mobile division, as the company turns to mobile chips and cheaper handsets to spur a recovery in profit.

Samsung said that fourth-quarter net profit fell to 5.35 trillion Korean won ($4.9 billion), down 27% from a year earlier and marking a third straight quarter of net profit decline, as the smartphone giant's mobile profit plunged from a year earlier.

The slide came amid intense competition. Data from researchers showed Samsung lost significant smartphone market share in key markets including China following rival Apple Inc.'s launch of bigger screen iPhones in September last year that sold well globally.

Data tracker Counterpoint Technology Market Research said that Samsung fell to fifth place among handset manufacturers in China in the fourth quarter, with just 9% of smartphone sales. A year earlier, Samsung had 17% of the market, but has been surpassed by market leader Apple, as well as domestic rivals Xiaomi Corp., Lenovo Group Ltd. and Huawei Technologies Co.

However, Samsung managed to limit the damage to profit margin at the company's mobile division, which clocked in at 7.5%. While that is a far cry from the almost 20% profit margin that the mobile division enjoyed for several years, it is a slight improvement on the previous quarter's 7.1%.

The 27% decline in fourth-quarter net profit from a year earlier was also an improvement from the 49% year-over-year slump the company suffered in the third quarter.

The company is pinning its hopes on new phones and processing chips in smartphones to limit the damage as it readies its new flagship phone launch.

Analysts forecast a modest recovery in the company's bottom line this year on demand for its memory chips and processors.

The South Korean technology giant could start rolling out a successor to its Galaxy S5 model as early as March, analysts say, in an attempt to bolster smartphone sales.

A large number of new model could come equipped with an internally designed mobile processor, according to a person familiar with the matter, unlike previous models that relied heavily on processors from Qualcomm Inc. This will help the company lift its mobile profit--albeit modestly--as well as the company's chip unit that makes mobile processors, analysts say.

The company has also been expanding its production of low-cost phones by pouring billions of dollars into building and expanding factories in Vietnam, as well as enlarging a cellphone manufacturing plant in the northern Indian city of Noida.

The Indian facility will oversee production of Samsung's new Z1 smartphone, which is the first to be powered by its homegrown operating system Tizen, an alternative to Google Inc.'s Android platform.

At the same time, the company lifted its 2014 dividend by 40%, its latest move to appease shareholders and government regulators who have been calling on South Korea's biggest companies to loosen their grip on their cash hoards. Samsung had about $60 billion in cash at the end of the third quarter.

Fourth-quarter operating profit fell 36% to 5.3 trillion won on an 11% drop in revenue at 52.7 trillion won, Samsung said. The figures were in line with the company's previous guidance.

Analysts estimate Samsung shipped 74 million to 77 million smartphones in the fourth quarter, down from an estimate of 86 million units a year earlier from Strategy Analytics.

Rival Apple sold 74.5 million iPhones in its fiscal first quarter, up 46% from a year earlier.

Samsung didn't disclose mobile shipments.

Write to Min-Jeong Lee at min-jeong.lee@wsj.com and Jonathan Cheng at jonathan.cheng@wsj.com

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