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SEOUL (Reuters) – Samsung Electronics, the world’s top memory chip maker, is expected to deliver a disappointing profit forecast on Wednesday. The South Korean company has been struggling to keep up with Nvidia’s strong demand for AI chips, which have been critical to its growth.
Also the world’s largest smartphone and TV maker, Samsung is set to report operating profits rising to 8.2 trillion won ($5.6 billion) in the quarter ending December. This represents an increase from a low base of 2.8 trillion won a year earlier but marks a decline compared to its previous quarter’s profit of 9.18 trillion won.
A host of analysts have recently cut their earnings estimates, with some predictions pointing toward operating profits falling below 8 trillion won. In October, Samsung made an unusual public apology for its disappointing third-quarter performance and stated that it was making progress in supplying AI chips to Nvidia. However, since then, delays in delivering high-end chips to Nvidia have weighed heavily on the company’s earnings, according to industry analysts.
In November, Samsung replaced several top executives in its chip division, while naming its chip division chief co-CEO and granting him direct control of the struggling memory chip business. Samsung Electronics’ shares, which are among the most valuable stocks in South Korea, have plummeted by 32% last year, lagging behind the broader market’s 10% decline.
In contrast, Samsung’s cross-town rival SK Hynix—a major supplier of advanced AI memory chips to Nvidia—is expected to post record earnings for the fourth quarter, according to analysts.
CHALLENGES IN CHIP SUPPLY AND DEMAND
Lacklustre demand for traditional chips used in mobile phones and personal computers coupled with rising production from Chinese rivals has put pressure on chip prices, analysts said. U.S. chipmaker Micron Technology last month forecasted that quarterly revenue and profits would fall below Wall Street estimates, sending shares lower as weak demand for consumer-focused products impacted Samsung’s rival business.
Prices of DDR4 DRAM chips used in personal computers have fallen by up to 13% in the fourth quarter, according to estimates from TrendForce, a market research firm. This decline is expected to continue another 15% in the current quarter. The positive impact of the weaker local currency, which boosts repatriated earnings from overseas operations, has been somewhat offset by this price drop.
The South Korean won dropped to its weakest level in 15 years in December after President Yoon Suk Yeol’s martial law decree triggered political turmoil and U.S. President-elect Donald Trump’s advocating for higher tariffs on imports. This devaluation has impacted Samsung’s ability to repatriate profits, further straining its financial performance.
Analysts have warned that Samsung’s business of making logic chips designed by customers like Qualcomm is expected to continue to incur losses, eroding its chip earnings.
FUTURE PLANS AND OUTLOOK
Samsung will announce its estimates for fourth-quarter revenue and operating profit on Wednesday, with a plan to release detailed results including a breakdown of earnings from each of its businesses in late January.
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