Samsung SDS, LG CNS and Hyundai AutoEver all continued to grow revenue in the third quarter of this year, but their profitability results diverged. Expanding demand for artificial intelligence (AI) and cloud services, alongside revenue recognition from large IT projects, drove revenue growth. However, the extent of earnings improvement varied according to each company's main businesses and cost structure, drawing attention to future returns on AI investment and whether profitability will recover.
According to industry sources on October 30, Samsung SDS, LG CNS and Hyundai AutoEver all reported third-quarter revenue above market expectations. Increased corporate adoption of AI and cloud services, next-generation systems projects in the financial sector and higher IT investment by group affiliates supported their results. New external customers and continued revenue recognition from existing large projects also sustained revenue growth at the major IT services companies.
AI, cloud services and group IT investment drive revenue growth, with Hyundai AutoEver growing fastest
Samsung SDS had the largest total revenue of the three at KRW 3.7725 trillion, followed by LG CNS at KRW 1.6643 trillion and Hyundai AutoEver at KRW 1.2247 trillion. Hyundai AutoEver recorded the highest year-on-year revenue growth at 16.2%, followed by Samsung SDS at 11.2% and LG CNS at 9.3%.
Samsung SDS also had the highest revenue excluding logistics. Its third-quarter IT services revenue was KRW 1.681 trillion, KRW 16.7 billion more than LG CNS.
Samsung SDS's third-quarter revenue also exceeded market expectations. It was 3.1% above the market consensus of KRW 3.6591 trillion compiled by financial information provider FnGuide, as both its cloud and logistics businesses grew.
Growth in the cloud business was particularly strong. Third-quarter revenue reached KRW 796.1 billion, up 18% year on year. Cloud services' share of IT services revenue increased from approximately 42% in the same period last year to 47% this year. Cloud revenue from external customers surged 92%, with expansion beyond group customers also contributing to the strong results.
The cloud service provider (CSP) business grew 15% year on year, while the managed service provider (MSP) business grew 25%. AI transformation in the public and financial sectors and expanding demand for graphics processing unit (GPU) rental services contributed positively. Logistics revenue also rose 16.5% year on year to KRW 2.0915 trillion, supported by increased air and sea freight volumes and freight rates.
Lee Sang-heon, an analyst at iM Securities, said: "Accelerating AI data center revenue growth could make profitability improvements more visible and lead to a valuation reassessment. Not only is a substantial share of demand expected to come from captive customers, but attracting global frontier AI companies could also become possible, accelerating profitability improvements as utilization rises."
LG CNS recorded its highest-ever third-quarter revenue, supported by next-generation systems projects in the financial sector. Third-quarter revenue rose 9.3% year on year to KRW 1.6643 trillion, 1.6% above the market consensus of KRW 1.6374 trillion. Large financial-sector projects secured since last year were a major contributor as they began translating into substantial revenue growth.
Digital business services (DBS) revenue in particular increased 21.3% year on year to KRW 408.2 billion. Next-generation systems projects for NH NongHyup Bank, Mirae Asset Life Insurance and KB Kookmin Bank entered the development phase, driving revenue growth. The company also recently won a core banking system modernization project for MG Community Credit Cooperatives, expanding its financial-sector customer base.
AI and cloud revenue also increased 9.3% year on year to KRW 961.5 billion. Construction and operation of the Samsong AI data center, expansion of the colocation business and increased cloud usage by external customers supported the results. AI and cloud services accounted for approximately 58% of total revenue.
However, analysts also said the cost burden of increased AI infrastructure investment needs monitoring. Daishin Securities expected revenue to increase as utilization at existing data centers rises, but said the monetization schedules for new AI factories and overseas data centers, along with depreciation expenses arising from capital expenditure, should be examined.
Jung Hae-chang, an analyst at Daishin Securities, said: "Clarification of the Indonesian joint venture's data center operating and monetization schedules will determine growth next year and over the medium to long term. The burden of depreciation expenses arising from capital expenditure also needs monitoring."
Hyundai AutoEver recorded the highest revenue growth among the three companies. Third-quarter revenue rose 16.2% year on year to KRW 1.2247 trillion, approximately 2.0% above the market consensus of KRW 1.2007 trillion. Increased digital transformation (DX) investment by Hyundai Motor Group supported revenue growth.
Enterprise IT was a major contributor, with revenue increasing 19.7% year on year to KRW 1.0248 trillion. Systems integration (SI) revenue rose 19.9% to KRW 504.9 billion, while IT outsourcing (ITO) revenue increased 19.5% to KRW 519.9 billion. Cloud migration and next-generation enterprise resource planning (ERP) system projects at Hyundai Motor Group affiliates were seen as positive contributors.
Overseas subsidiaries also continued to grow across major regions. In the first three quarters of this year, revenue increased year on year by 18.7% in the Americas, 14.9% in Europe, 28.0% in India and 13.8% in China. Increased global IT investment by group affiliates and growth in connected car service (CCS) subscribers contributed to the gains.
In contrast, vehicle software revenue increased just 0.8% year on year to KRW 199.9 billion. An unfavorable operating environment, including US tariffs and geopolitical risks, continued to delay a revenue recovery.
Profitability diverges despite revenue growth, with only LG CNS beating operating profit expectations
All three companies exceeded market expectations for revenue, but their operating profit results differed. Only LG CNS exceeded operating profit expectations, while Samsung SDS posted limited growth and Hyundai AutoEver recorded a decline.
Samsung SDS's total third-quarter operating profit rose 3.7% year on year to KRW 241 billion, but was 1.6% below the market consensus of KRW 244.8 billion. Its overall operating margin fell from approximately 6.8% in the same period last year to 6.4% this year, while its IT services operating margin declined from 12.4% to 12.0%. IT services operating profit increased 2.2% year on year to KRW 201.4 billion.
Against this backdrop, Samsung SDS plans to establish a further basis for growth by expanding its external cloud business and investing in AI data centers. Although cloud revenue is rising rapidly, the high share of logistics revenue and the profitability of new AI businesses are cited as areas for improvement.
An industry source said: "Samsung SDS's cloud business is growing rapidly, but the high share of logistics revenue limits improvements in its overall operating margin. What matters going forward is whether expansion of its external cloud business and AI data center investment translate into actual profit growth."
LG CNS reported operating profit of KRW 138.2 billion, up 15.0% year on year. That was the highest growth rate among the three companies and 1.1% above the market consensus of KRW 136.7 billion. Its operating margin rose from 7.9% in the same period last year to 8.3%, while its gross margin improved from 13.9% to 14.9%.
In the third quarter of last year, operating profit declined 15.8% year on year despite increased AI and cloud revenue. This year, profit growth recovered as revenue recognition from large financial-sector projects gathered pace. Despite a 3.9% decline in smart engineering revenue, growth in financial-sector projects and AI and cloud services supported improved profitability.
An industry source said: "LG CNS appears to have recovered from last year's weak profitability as revenue recognition from large financial-sector projects has gathered pace. Its AI and cloud business targeting external customers is expanding, which is expected to have a positive effect on both future revenue growth and margin improvement."
Hyundai AutoEver's third-quarter operating profit declined 2.6% year on year to KRW 68.9 billion. It was approximately 9.9% below the market consensus of KRW 76.5 billion, while its operating margin fell from 6.7% in the same period last year to 5.6%.
In enterprise IT, a higher share of standalone ITO sales reduced the gross margin from 11.1% in the same period last year to 10.1%. The vehicle software gross margin also fell from 10.6% to 8.5%. The deferral of some enterprise IT contracts to the fourth quarter also weighed on third-quarter profitability.
Gross profit increased just 4.0% year on year, while selling, general and administrative expenses rose 14.4%. Hyundai AutoEver plans to pursue a fourth-quarter profitability recovery through revenue recognition from deferred contracts and improved operating efficiency.
An industry source said: "Hyundai AutoEver needs to improve the profitability structure of each business as its ability to generate profit has weakened relative to the pace of revenue growth. What matters going forward is whether increased AI and software-defined vehicle (SDV) investment by group affiliates can lead not just to revenue growth but also to expansion into higher-value-added businesses."
Net income declined year on year at all three companies. Samsung SDS's net income fell 10.1% to KRW 180.7 billion, LG CNS's fell 21.1% to KRW 83 billion and Hyundai AutoEver's fell 14.9% to KRW 44.9 billion. Foreign currency transaction and translation losses associated with declining exchange rates were understood to have affected non-operating results and contributed to the decline in net income. An industry source said: "IT services companies continue to grow revenue, but deterioration in non-operating results due to exchange rate fluctuations appears to have weighed on net income. If exchange rate volatility increases, the ability to manage foreign currency assets and liabilities will also become important."
Samsung SDS and LG CNS expand AI infrastructure investment as Hyundai AutoEver enters GPUaaS
All three companies appear to be emphasizing expansion in AI infrastructure-related businesses in their future growth strategies. Samsung SDS and LG CNS are pursuing large-scale data center and GPU equipment investments, while Hyundai AutoEver has also attracted attention by deciding to participate directly in Hyundai Motor Group's AI infrastructure business.
Samsung SDS drew particular industry attention by announcing plans to invest KRW 5 trillion in AI infrastructure through 2031. While pursuing projects including the National AI Computing Center and the Gumi data center, it was also selected as the preferred bidder for Pacific Asset Management's project to build and operate a data center of more than 200 MW, raising expectations. Samsung SDS aims to combine large-scale GPU infrastructure with its cloud business to secure AI demand in the public and financial sectors.
LG CNS also recently decided to invest approximately KRW 380 billion in GPU-related equipment. It is expanding its AI infrastructure business with offerings including GPUaaS based on Nvidia's next-generation Vera Rubin GPUs and its AI HAUS modular data centers. Additional revenue recognition from next-generation systems projects in the financial sector and expansion of its AI factory business are also expected to contribute to earnings growth next year.
Hyundai AutoEver has also secured a new growth opportunity by participating directly in Hyundai Motor Group's Saemangeum AI data center business. At a board meeting on October 30, it decided to invest KRW 114.608 billion in a joint venture provisionally named HMG AI Factory, which will handle GPU services. The investment will be made in stages from this year through 2031, resulting in a final ownership stake of 26%.
The joint venture will build and operate computing infrastructure, including GPUs, at the Saemangeum AI data center. Through this venture, Hyundai AutoEver plans to pursue GPUaaS, which provides GPU-based computing resources, and cloud computing services. This would expand its business from existing server supply and systems construction and operation into AI computing infrastructure services.
A previously signed GPU server supply contract worth approximately KRW 365 billion with Hyundai Motor and Kia is also expected to contribute to near-term results. Securities analysts expected revenue from the contract to be recognized across the fourth quarter of this year and the first quarter of next year. Together with the effect of deferred enterprise IT contracts, this would likely support improved fourth-quarter results.
Over the medium to long term, Hyundai Motor Group's AI data center construction and robotics expansion are cited as new growth opportunities. Samsung Securities expected Hyundai AutoEver to increase SI and ITO revenue through participation in GPU supply, data center software development and cloud operations. It also estimated that GPU purchasing agency services during data center construction could generate approximately KRW 5 trillion in revenue from 2027 through 2029.
Lim Eun-young, an analyst at Samsung Securities, said: "Hyundai AutoEver is the biggest beneficiary of Hyundai Motor Group's data center construction. We expect Hyundai AutoEver's SI and ITO revenue to expand as the data centers grow in scale."
An industry source said: "IT services companies are increasing revenue primarily through AI, cloud services and large systems projects, but operating profit growth differs depending on each business's profitability. Going forward, what matters is whether AI infrastructure investment and external business expansion translate into actual profit growth, and how much the companies can reduce the cost burden of existing businesses."
Original Korean article: ZDNet Korea
English brief by Korea Wind Intelligence, koreawindintel.com
