KT and KT Cloud pursue reintegration
The need for a new growth engine amid growth limitations
Ensuring competitiveness in public and financial sector contracts
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KT is driving the reintegration of KT Cloud, which was spun off in 2022, due to an internal sense of urgency about the need for a new growth engine and a growing recognition that cloud and artificial intelligence (AI) infrastructure are not separate businesses.
On June 25th, the telecom industry saw the merger between KT and KT Cloud as more than just a reorganization. Rather, it is expected to be a catalyst for KT to transform into an AI infrastructure company by combining AI, cloud, and network into a single business unit. SK Telecom, a major mobile phone company, is also actively investing in its data center business and accelerating its path to becoming an AI infrastructure company. As the regulated communications industry reaches its growth limits, the rapid transition to AI data centers is seen as a potential new source of revenue.
“If KT re-integrates KT Cloud and sells AI data center, GPU cloud, enterprise AI, and network as one package, customers will be able to contract for network, cloud, and AI services at once. This will increase KT’s competitiveness in bidding for contracts with large enterprises, finance, and the public sector,” said an industry source.
Considered a future growth driver, AI data centers require intensive capital investment and rapid decision-making. If KT brings KT Cloud back under its control, CEO Park Yoon-young will be able to make investment decisions directly, potentially accelerating data center construction. Additionally, KT can eliminate duplicate organizations between the two companies, leading to cost savings. Through the re-integration of KT Cloud, we plan to streamline asset allocation and re-prioritize investments to strengthen AI’s competitiveness.
KT, which operates the largest number of internet data centers in South Korea, plans to expand its data center capacity to 500MW (megawatts) by 2030. Kim Bong-gyun, head of KT’s enterprise division, said during a conference call in the first quarter of this year that the company has plans for a new AI data center and expressed confidence that KT Cloud, which operates the data center, “will achieve double-digit growth.”
IPO difficult due to government’s dual listing regulations…pursuing synergies through integration
The need for KT to reintegrate KT Cloud has also increased as government regulations against dual listings have made initial public offerings (IPOs) difficult. Four years ago, KT separated KT Cloud to facilitate independent growth and IPO potential for the cloud business. However, KT Cloud’s listing has become increasingly difficult as the government and stock exchanges have revised regulations that fundamentally limit dual listings of companies affiliated with large conglomerates.
In order for a parent company to list a subsidiary, it must meet screening criteria such as management independence, business independence, and investor protection. Currently, KT Cloud has significant business overlap and is dependent on KT. In fact, CEO Park cited concerns about a “split listing” as the main reason for the reunification. When KT spun off KT Cloud four years ago, it kept this listing controversy in mind and chose to make a physical investment rather than a physical split. As the IPO environment changes due to government regulations, “integration synergies” are becoming more important than “spin-off premiums” and this is one of the main reasons behind the push for reintegration.
Another factor motivating CEO Park is that KT, which was hit hard by a hacking incident last year, is relying more on temporary profits from real estate development than on the AI business itself, and there is an urgent need for drastic structural reforms. The calculation is that rather than pursuing short-term profits, reorganizing the company through the reintegration of KT Cloud and transforming it into an AI infrastructure company will be more beneficial for long-term corporate value.
An industry source said, “Due to the rapid development of the AI business, KT Cloud can be directly managed by returning it to the headquarters organization.The importance of the data center business is increasing, and the synergies from integrating the data center and cloud businesses are increasing, so re-integration is being considered.” However, KT and KT Cloud stated that they have not conducted any specific consideration.
This content was created with the help of: AI translation service.
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