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SK Telecom Co., Ltd.
11/6/2024
Good afternoon. I am Heejun Chung, IRO of SK Telecom. Thank you for joining SK Telecom's earnings conference call.
Today, we will first deliver a presentation on major events, 2024 Q3 earnings highlights, and business performances, which will be followed by the Q&A session.
The call is attended by our executives from relevant business divisions, including Yang Seok Kim, CFO of SK Telecom, and we are providing consecutive interpretation for the call. I would like to remind you that all forward-looking statements are subject to change depending on various factors such as market and macro situations. Let me now present our CFO. Good afternoon. This is Yangseop Kim, CFO of SK Telecom.
2021년 11월 인적분할 이후에 SK텔레콤은 통신사업과 AI에만 집중하겠다는 새로운 비전을 선언했습니다. 이후 3년 동안 당사는 AI 피라미드 전략체계를 수립하고 글로벌 AI 컴퍼니로 도약하기 위해 전사적 역량을 집중하며 다양한 제휴와 투자를 진행해 왔습니다.
After the spinoff in November 2021, SK Telecom announced a new vision to focus solely on telecommunications and AI. For the past three years, the company has established an AI pyramid strategy, mobilized enterprise-wide capabilities to become a global AI company, and pursued a number of partnerships and investments. As the recently announced Corporate Value Up Plan illustrates, SK Telecom will now show you specific ways to make money using AI.
There are three main ways to generate profit with AI that SK Telecom is pursuing. First is the AI Data Center. First is AI data centers.
In the DC market, demand triggered by AI continues to exceed supply. We have extensive DC operational experience, AI solutions secured together with domestic and global partners, and nationwide base stations that can be utilized as AI infrastructure. SK Telecom aims to become a leader in the global AI data center market.
The second is AI B2B. Second is AI B2B. Enterprise business is expected to see rapid market expansion in the AI era. We will actively utilize generative AI foundational models
secured through in-house effort and external partnerships, and mobilize B2B capabilities available within the group to identify grand use cases and win contracts.
The third is AI B2C. In the meantime, B2C service markets have been led by platform entrepreneurs based on advertising and BM. However, in order to build an AI service that is recently under pressure, the infrastructure cost is difficult to meet just by advertising, Third is AI B2C. The B2C service market has been led by platform companies based on advertisement business models.
However, advertising revenue is not sufficient to cover the cost of building infrastructure needed to provide AI services that are becoming popular recently. As such, subscription business models are gaining attention. Given this trend, new opportunities will be opening up for telcos that already have subscription business models. SK Telecom has already established a strong subscription model with T-Universe. And we ask for your support and interest in how we will advance our ADOT and global personal AI agent services.
Let me now report on the consolidated financial results for Q3 2024. The net profit was recorded as 53.3 billion won, which was improved by 7.1% compared to the previous year due to the stabilization of major costs such as marketing costs and price-to-price ratio. With the quality improvement effect through the operation improvement that has been steadily promoted, efficiency through the spread of electronic AI has been shown. The short-term profit was recorded as 280.2 billion won.
Consolidated revenue reported $4,532.1 billion up, up 2.9% year-over-year, driven by the stable growth of roaming and B2B solution business. Operating income posted $533.3 billion, up 7.1% year-over-year, thanks to the stabilization of costs such as marketing and depreciation. The positive results show the impact of strengthening business fundamentals through operational improvement and enhancing efficiency with the company-wide adoption of AI. Net income posted 280.2 billion won. On a non-consolidated basis, revenue posted 3,203.2 billion won, up 1.7% YOY. Operating income and net income reported 457 billion won and 222.4 billion won, respectively. Now, I would like to talk about the main business performance and strategy direction of the 3rd quarter of 2024. Let me now turn to business highlights for Q3 2024 and strategic directions.
AIDC는 앞서 말씀드린 돈 버는 방법에서 가장 단기 성과를 기대할 수 있는 사업입니다. SK그룹의 액침냉각 기술을 통해 전력 효율을 높이고, 람다의 GPU 파워를 효과적으로 공급하며,
First, data center revenue grew 14% year-over-year thanks to higher utilization of data centers. In terms of AI monetization, AIDC is the business that can expect the most short-term results. We aim to be a leader in both the Korean and global DC market by applying immersion cooling technology of SK Group for energy efficiency, supplying GPU power of Lambda effectively, and employing AI data center solutions of Penguin Solutions.
AI infrastructure superhighway
As we announced at the AI summit this week, we will establish the AI infrastructure superhighway to evolve it as core infrastructure that will accelerate the development of Korea's AI ecosystem. The superhighway will enable nationwide connections through edge AI based on AI data centers as regional hubs and GPU as a service in the Seoul metropolitan region.
Global Telco AI Alliance members are preparing for the next half of the year, and we are also establishing a global AI joint law that will serve them at the same time. We are planning to apply LNM to customer centers and large customer services such as T-World to improve performance and efficiency.
We are currently developing the telco-specific LLM together with the members of the Global Telco AI Alliance. We aim to launch it commercially in the first half of next year, and we're in the process of establishing a global AI joint venture for the LLM service. We plan to first apply the telco-specific LLM to our own customer services through customer contact centers and T-World to assess its performance and effect.
Next, about AI services, ADOT was able to make a major change in August. It provided professional services through natural conversation experiences and various agents, and strengthened the search and daily convenience features. As a result, the total number of subscribers exceeded 5.5 million by the end of September. In October, AOLO changed its T-phone to an ADOT phone that integrates AI phone functions, and released a multi-LNM agent PC version.
Next, regarding AI services, we implemented major changes to ADOT in August to provide natural conversational experience and professional services through diverse agents and strengthen search and other everyday convenience features. Thanks to the overhaul, the cumulative downloads as of the end of September exceeded 5.5 million. In October, we upgraded T-Phone to ADOT phone with AI phone features and launched a PC version of multi-LLM agent. We plan to expand the application of ADOT's AI features to various services.
On the other hand, the number of 5G users in the mobile business reached 16.58 million by the end of September, and the 5G customer base reached 73%. In the MNO business, our 5G subscribers recorded 16.58 million as of the end of September 2024,
accounting for 73% of the total subscriber base. SK Broadband secured 9.62 million pay TV subscribers and 7.11 million broadband subscribers as of the end of Q3. Our strategy for the fixed and mobile business aims to improve profitability through stable market operation while defending the top line by focusing on attracting and retaining high ARPU subscribers.
The enterprise business continued to grow by 8% compared to the previous year. In addition to stable performance improvement, the cloud business sales also showed a 30% growth compared to the previous year. The enterprise AI business is also continuing to achieve significant level of performance. We will continue to develop the B2B business as the core axis of the future and specify how to make money with AI.
In Q3, enterprise business sustained a growth trend of 8% year-over-year. The cloud business also saw a revenue growth of 30% year-over-year with stable fixed-line business performance. Enterprise AI business continues to win meaningful orders, and we will grow the enterprise AI business as a key pillar of B2B business and develop concrete ways to generate profit.
Lastly, I would like to talk about the stock market.
Finally, let me turn to shareholder returns.
The DPS for Q3 was determined at 831, the same as Q2. For the remainder of 2024 and beyond,
SK Telecom will strive to maximize corporate value as well as shareholder value.
We look forward to your continued support and encouragement. Thank you. We will now begin the Q&A session.
질문을 하실 분은 전화기 버튼의 별표와 1번을 누르시기 바랍니다. 질문을 취소하시려면 별표와 2번을 누르시면 됩니다. Now, Q&A session will begin. Please press star 1. That is star and 1 if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2. That is star and 2 on your phone. The first question will be presented by Seungwoong Lee from Uanta Securities. Please go ahead with your question.
I would like to ask you a couple of questions.
First of all, when we look at the earnings results for the third quarter, we see that there's a larger recognition of non-operating losses, which has led to a smaller net income. I wonder if this will have any substantial impact on your year-end dividend. The second question has to do with your corporate value-of-plan, which you announced recently. However, SK Telecom is not included in the value-of-index. So I would like to understand your responses to that situation and the background behind your disclosure of the corporate value up plan. Thank you.
This is CFO of SK Telecom. Thank you for your questions. I would first like to address your question on adding more color on our year-end dividend. As you may already know, SK Telecom announced a new shareholder return policy in April involving the use of more than 50% of consolidated net income as funds for shareholder return
And for the entire year so far, the DPS per quarter has been determined at 831. As for total shareholder return for the entire year, it very much depends on the closing of the fourth quarter earnings and the BOD deliberation, so I won't be able to give you a definite answer now, but the company remains committed to the idea that we need to maintain a stable dividend trend as much as possible because dividend is crucial for our corporate valuation.
In the third quarter of this year, we recognized the loss of investment asset evaluation as the cost of sales, and the short-term net profit decreased by 9% compared to the previous year. However, this loss of evaluation is one-off and corresponds to a non-negotiable item, so we clearly say that it will be excluded when calculating the annual dividend. That's all.
As you pointed out, in the third quarter, consolidated net income fell about 9% year-over-year due to the recognition of valuation losses from investment assets as non-operating expenses. But I would like to make it very clear that these valuation losses are one-off, non-recurring items, so they will not be included when calculating funds for dividend payout.
Next, I would like to answer your question about the balance sheet.
Now I'd like to address your question on our company's value-up disclosure.
We reported the corporate value-up program to the Board on October 24th and made the disclosure. This is the first year when companies are encouraged to disclose their value of programs. In consideration of the purpose of this program, we prepared a value of plan based on a clear analysis of the current status and presentation of the future vision
so that the company value can be properly acknowledged by the investors.
The company has included ROE, stock exchange rate, and AI Vision 2030 as key indicators of the official content. The company's ROE is currently at the highest level of the industry at 9%, but through operational improvement and AI transformation to improve the quality of the industry,
개선할 계획입니다. We included ROE, shareholder return ratio, and AI Vision 2030 as key indicators. Our ROE is around 9%, already the highest in the industry, but we aim to further improve it through operational improvement and AI transformation.
uh, uh,
And for shareholder return, we will maintain the current shareholder return policy of using more than 50% of adjusted consolidated net income for dividend payout, which is already the top level in the Korean stock market. And also through AI Vision 2030, we aim to demonstrate our commitment to future growth beyond telco by proposing the total revenue target of 30 trillion won and the AI portion of 35% by 2030.
By making a report to the BOD, we demonstrated our strong commitment and enhanced the plan's credibility.
And going forward, we will develop specific action plans and conduct regular monitoring on implementation, and we will actively communicate with the market.
As you said, we couldn't include any telecommunications companies, including our company, in the Korea Value-Up index released on September 24th. However, our company has been able to communicate with the market
As you mentioned, no TACOs including SK Telecom were included in the Korea Value of Index announced by the Korean Exchange on September 24th, but we will strive to enhance corporate value and actively communicate with the market so that we can be included in the index in the future. Thank you.
The following question will be presented by Soojin Kim from Miraese Securities. Please go ahead with your question.
Thank you for the opportunity to ask a question. I would like to ask two questions. As SKT has said so far, we are conducting various projects through AI. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed to the revenue. I'd like to ask you in detail how much the AI has actually contributed
Thank you for this opportunity. I would like to ask two questions. As you mentioned already, SK Telecom has been pursuing diverse businesses regarding and using AI, and I'd like to understand AI's contribution to your earnings and also the directions for your AI service development and business models. The second question has to do with the Perplexity Pro promotion, and I understand that this promotion has been receiving positive response in the market, So what kind of benefits did you reap from this promotion, maybe in terms of the increase in the number of subscribers to ADOT or contributions to the earnings overall?
Thank you for your questions. Let me first address your question on our monetization plans using AI. Under the AI pyramid strategy, SK Telecom is developing concrete monetization plans
focusing on AIDC, AI B2B, and AI B2C as the three main domains to generate profit using AI.
First of all, AIDC is the first area that can be promoted in the AI field, and as the partnership contract with Lambda was established in the last quarter, it began to advance the GPU of NVIDIA at the Gasan Center. First of all, AI data center is key infrastructure for AI, and it is an area that we can pursue first. Based on the partnership agreement with Lambda that was signed in the second quarter,
we began to deploy NVIDIA's GPUs in KASAN Center. And when Lambda AI Data Center is open in December as scheduled, we will be able to provide GPU as a service, which is an AI cloud service.
Also, through group cooperation, we plan to promote global progress by combining the energy solution of the GPU Azure service with the solution optimized for AIDC.
In addition, we will combine energy solutions to GPU as a service through cooperation with the group to secure and validate solutions optimized for AI data centers and pursue global expansion.
AI B2B is an AI solution for enterprises with high market growth. In addition to cooperation with big tech such as Entropic Open AI, which is continuously promoted in this market,
Second, AI B2B market is about selling AI solutions for enterprise customers, which has a very high growth potential. And for this market, in addition to cooperation with big tech companies such as Anthropic and OpenAI that the company has been pursuing, A.X that we have developed on our own is also becoming increasingly important in terms of security and cost.
The company is planning to advance to the global market by satisfying the needs of customers and employees through mutual cooperation within the group to promote the enterprise business.
So for AI enterprise business, we will pursue mutual cooperation at the group level to satisfy AI needs of group-affiliated companies as well as corporate clients and further expand globally.
Lastly, AI B2C was the first company in Korea to enter the market through ADAS. In the last quarter, AI B2C was the first company in Korea
Finally, for the third domain, AI B2C, SK Telecom is indeed the first company to enter the AI B2C market with ADOT. The app overhaul in the second quarter and the introduction of Perplexity have received positive responses in the market, and we were able to confirm domestic customers' strong interest in AI.
Starting with the launch of ADOT's phone, we will expand ADOT agents to more diverse external service domains
And we will be able to offer truly meaningful AI agent experience based on a deeper understanding of customers in diverse contexts.
Global PAA도 연내 크로즈드 베타 테스트를 통해서 글로벌 성장성을 탭핑해 볼 예정이고 이러한 국내에서 이뤄지는 다양한 서비스 제공을 통해서 회사는 향후 AI 서비스의 수익화에 대해 지속적으로 타진해 나가도록 하겠습니다. 이상입니다.
And we will test the global marketability of global PAA through a closed beta testing within this year. And based on diverse service offerings both at home and abroad, we plan to explore monetization potentials of AI services going forward. Thank you.
Now, on your second question on the promotion with perplexity, the head of AI growth strategy will respond.
I am Lee Jae-shin, the Director of AI Growth Strategy. As I mentioned in the last 2 minutes, the company invested $10 million in Perflexity to provide global-level AI services to SK Telecom customers. From the beginning of September, we started a promotion that provided Perflexity Pro for free to SK Telecom customers for $20 per month.
I am Lee Jae-Hsin, head of AI Growth Strategy. We carried out the promotion for two months from September 4th for the Pro Model of Perplexity, which was announced at the time of SK Telecom's investment of $10 million in Perplexity in the second quarter. In order to provide global-level AI services to our customers, we offer one-year free subscription to Perplexity Pro Model, which is worth about $20 per month to SK Telecom customers.
Perplexity carried out similar promotions in other countries such as Japan and Germany.
And in Korea, thanks to the marketing capabilities and our channel competitiveness of SK Telecom, we were able to garner the largest number of customers in the shortest amount of time.
SK Telecom was able to lead the unparalleled publicity and partnership thanks to the success of securing the most subscribers so quickly. Currently, both companies are in the process of developing
thanks to this unprecedented level of success, SK Telecom has been able to pursue and forge partnership with Perplexity. And currently, our two companies are collaborating very closely in terms of technology and marketing.
First of all, we are promoting AI search for joint products in terms of marketing. After the promotion is over, we will continue to promote AI search The two companies are currently working on developing AI products.
And when the promotion is over, we will be able to offer Perplexity Pro model subscription to all customers, not just SK Telecom's customers, to all Korean people at much more favorable terms and conditions.
Secondly, in terms of technology, we are jointly developing a Korean specialized AI search model. With Perplexity's excellent AI search technology and SK Telecom's AI assets, Now, in terms of cooperation on technology, SK Telecom and Perplexity are jointly developing Korean enhanced AI search model
by combining Perplexity's advanced AI search technology and SK Telecom's AI assets as well as technology, so that this engine can take into consideration Korean-specific cultural contexts and provide responses that are tailored to the Korean users.
As an AI company, we have enough AI assets and technology. This promotion has demonstrated our capabilities in terms of marketing and SK Telecom's assets and technology as an AI company.
We have both data, multimodal data, as well as A.X LLM, AI data centers, and GPU farms. So you can see how we have capabilities across the entire value chain.
SK Telecom is planning to expand its AI service market by providing customers with various AI experiences and choices through continuous collaboration with global AI companies.
In addition to our cooperation with Perflexity, we will continue to cooperate with various global AI companies to offer AI experience and choices to our customers and expand the market. Thank you.
The following question will be presented by Dongyoon Lee from Macquarie Securities. Please go ahead with your question.
Thank you for the question. Thank you for the opportunity to ask your questions. My first question is the impact of the launch of flagship handset series on your 5G subscriber addition as well as marketing costs.
And my second question is to ask you for some updates on your cooperation with Penguin Solutions and Lambda for your AIDC business.
Thank you for your questions.
And regarding your question on marketing expenses, the head of Integrated Marketing Strategy Office will address.
Yes, I'm Kim Ji-young, the head of Integrated Marketing Strategy Office. I'm Kim Ji-hyung, head of the Integrated Marketing Strategy Office. In the third quarter, on top of Samsung Galaxy Foldable series launched in July, new iPhone series which typically were released in the fourth quarter
were released early in September, so we had more diverse flagship handset lineups compared to the other quarters.
In addition to the effective flagship handsets, 5G price plans that add popular benefits such as Netflix,
Subscription discounts are still very popular, which contributed also to sound earnings.
Thanks to these factors, 5G subscriber net ads in the third quarter were 350,000, up 20% QOQ, and the 5G penetration rate is nearly 73%. We believe that these outcomes have resulted from our focused efforts on services and price plans with differentiated benefits.
that the company has been emphasizing, as well as sophisticated marketing activities based on accurate analysis of customers' needs and preferences. Going forward, we will continue to implement this type of marketing strategy to generate strong revenue and improve profit in M&O business in the mature 5G market. Thank you.
Next, I'd like to invite the head of Enterprise Business Strategy Office to respond to your question on AI data centers.
This is Pae Jae-joon, head of the Enterprise Business Strategy Office. Let me answer your question on our AI data center business.
AI pyramid 전략에 따른 AI 사업 영역 중 AI 인프라 영역에서 최근 생성형 AI 확대와 더불어 AI DC 수요가 급증하고 있으며 이를 기회삼아 람라 및 펭귄 솔루션스와의 파트너십을 통해 글로벌 AI DC 생태계를 선도할 계획입니다.
Of the AI pyramid strategy in the AI infrastructure domain, with the rise of generative AI, there is a big growth in demand for AI data centers. Against this backdrop, we aim to lead the global AIDC ecosystem through partnerships with Lambda and Penguin Solutions.
First, we are planning to open the first AIDC in the Asia-Pacific region with Lambda in December this year. We plan to place more than 1,000 GPUs in 3 years and provide an environment that is suitable for high-precision GPU server operation.
First of all, in December this year, we will open the first AI data center in the Asia-Pacific region together with Lambda. And we plan to deploy thousands of GPUs in the next three years to provide an optimal environment for high-density GPU server operation. And we plan to use the data center to start a subscription-based AI cloud model, which is the GPU as a service business.
Our core competitiveness lies in our own technological capabilities as well as partnerships with global AI companies.
Through cooperation with Penguin Solutions that has expertise in large-scale AI cluster design, implementation, and operation, we are strengthening AIDC total solution capabilities, which are going to play a key role in securing leadership in the global AI data center market.
AIDC's fastest sales growth is predicted, and the GP Azure service business will be the first shortcut.
Also, in terms of AI revenue generation, among the three domains of AI value chain, we expect the most rapid revenue generation in AI data centers, and GPU as a service business will be the first step.
In the changing AI market environment, the company is planning to introduce various technologies for efficient AI DC operation, especially DCIM, etching cold technology, to reduce power consumption and operation costs.
In the rapidly changing AI market environment, we also plan to introduce various technologies for efficient AI data center operation. In particular, we are considering ways to reduce power consumption and operational costs by utilizing DSIM and immersion cooling technology, and we are currently conducting proof-of-concept in Bundang. These technologies are expected to further improve cost efficiency.
The following question will be provided by Hwe Jae Kim from Daesin Securities.
Please go ahead with your question.
I'm Kim Ye-Jae from Daeshin Securities. My question has a little bit of overlap with a previous question. In your value-up plan, you presented the 2030 target, so revenue of $30 trillion won and the AEI portion of 35%. So I'd like to understand the portion of AEI in your total revenue as of today, and what is your expectation going forward?
Thank you for your question. I'd like to comment on our 2030 targets.
For the past three years, SK Telecom has been actively pursuing the AI pyramid strategy, and when it comes to areas for AI monetization, we've concluded that AIDC, AI B2B, and AI B2C will be the three main areas, and we've decided to focus on these areas.
Now, as for AIDC and infrastructure, AI B2B and AI B2C, in all of these markets, there is a rapid growth in demand.
And so SK Telecom aims to develop services as quickly as possible so that we can gain leadership in these rapidly growing markets and continue to become an AI company.
AI data center is expected to show short-term sales results in the market that is already in demand. AI B2B is an area that is expected to grow in the market due to the spread of AI. AI B2C is First of all, in the AIDC market, there's already demand exceeding supply, so we believe that we will be able to generate revenue in the near future, and there is much more visibility in monetization in the AIDC market.
And moving on to the AI B2B market, with the development of generative AI, we expect very big growth potential of this particular market. And the B2C market has been led by platform companies, but we are seeing a paradigm shift in this B2C market. This will bring new opportunities for SK Telecom.
2030 sales and 35% AI sales is a challenging goal, but Thank you.
So our 2030 targets of total revenue of 30 trillion won and the AI portion of 35% are indeed ambitious targets. But please consider that our value of plan demonstrates our strong commitment to increasing the portion of AI to the level of the current telecommunications business so that we can transform into a global AI company. And as for the breakdown of revenue between telecommunications and AI, we are working on this and we will soon be able to communicate with the market when details are ready.
With this, we would like to conclude the earnings conference call for the third quarter of 2024 for SK Telecom. If you need further information or have additional inquiries, please feel free to contact the IR team. Thank you.