Samsung SDS Shifts From Building Data Centers to Operating Them

Samsung SDS is expanding its business beyond directly building artificial intelligence data centers (AIDC) to taking on the design, build, and operation of other companies' data centers. The company's new target area is the data center design-build-operate (DBO) business.

The purpose of this expansion is to move away from one-time systems integration revenue. Through a strategy of participating across the full data center lifecycle, Samsung SDS aims to secure long-term operating revenue.

The business model involves Samsung SDS leading the design and construction when asset managers or companies invest in data centers. Samsung SDS handles the configuration and operation of servers, networks, and cloud environments. Actual construction of buildings, power systems, and cooling facilities may be carried out in cooperation with specialized providers depending on the contract structure for each project.

Samsung SDS is pursuing the AIDC business in multiple forms depending on ownership and participation. The company's AIDC categories are direct investment, equity investment, and DBO for external customers. Its strategy is to both expand directly owned data centers and participate in DBO projects for data centers owned by external customers.

Samsung SDS is extending the capabilities it has built through IT infrastructure construction and operation for Samsung affiliates into the external AIDC market. On that basis, it is pursuing both data center acquisition and the provision of operating capabilities across each business type.

Under the direct investment model, Samsung SDS invests capital to secure a data center and provides computing resources to customers. Its main customer base for the direct investment model is being secured through affiliates.

Samsung SDS envisions expanding the customer base for the direct investment model to global frontier AI companies as well as public and private companies. The direct investment model is being pursued in a direction that secures both data centers and customers through capital deployment.

Under the DBO model, Samsung SDS designs, builds, and operates data centers that external operators such as asset managers have invested in. This approach has the advantage of allowing the company to secure design and construction revenue without owning the entire facility. It can also secure long-term operating revenue.

This year in the first quarter, Samsung SDS won a concept design contract for a data center being developed by a major domestic asset manager and is carrying out the work. The company described this as its first DBO order. However, it has not disclosed whether the order will lead to a full-scale contract covering the entire DBO scope, and the specific project size has also not been disclosed. For Samsung SDS, the significance lies in having secured an initial project case in the external data center market.

At its second-quarter earnings conference call in July, Samsung SDS announced that it would pursue the DBO business with a focus on external customers. Potential counterparties for DBO contracts were presented as asset managers investing in data centers. Potential end users of the actual facility were presented as public and private companies.

Lee Jun-hee, CEO of Samsung SDS, said the company achieved its first order in the first quarter based on recognition of its technological competitiveness, it was explained. It was also explained that results became visible in the second quarter as well.

Behind Samsung SDS's entry into the DBO business is the view that additional revenue can be secured after data center operations begin. Unlike general construction companies, which center their business on the completion and handover of data center buildings, Samsung SDS is envisioning a structure in which its business continues beyond the operating phase of the data center.

Samsung SDS can connect servers, networks, cloud, and generative AI platforms into a single business. For that reason, securing a data center through DBO provides a foundation not just for construction and handover, but for expanding into later operation and service areas.

If a DBO contract is signed, the company can secure operating rights or some colocation space usage rights. If operating rights or colocation usage rights are secured, the company can generate data center operating revenue, including for power and cooling, and can create long-term revenue from server management as well.

Depending on the contract structure, GPUs can be deployed in the colocation space Samsung SDS secures. By deploying GPUs in this way, the company can provide GPU as a service (GPUaaS), and it can also link the business to Samsung Cloud Platform (SCP) and managed service provider (MSP) services.

The generative AI platform FabriX and the collaboration solution Brity Copilot can also be applied. By applying FabriX and Brity Copilot, Samsung SDS can build a revenue structure that connects infrastructure, platform, and application, and the company sees the data center business not as simple building operations but as the starting point of a full-stack AI business.

Samsung SDS already has cloud customers and has accumulated cloud operations experience, and it is using those existing customers and that operational experience as the foundation for its DBO business.

In the second quarter of this year, Samsung SDS's cloud revenue was KRW 779.4 billion, up 17% from a year earlier. IT services revenue was KRW 1.7625 trillion, and cloud accounted for about 44% of IT services revenue.

In the public sector, demand for GPUaaS is growing, and the MSP business for financial and public customers is also expanding. Accordingly, customer demand needs to be reflected at the data center design stage, and doing so would allow GPU and cloud services to be quickly linked after facility completion.

Lee Jun-hee, CEO of Samsung SDS, said the size of Samsung SDS's AI infrastructure business is measured on a combined basis of directly owned facilities, equity investments, and external DBO projects. The current AI infrastructure business size is about 110 megawatts (MW).

Samsung SDS plans to expand AI infrastructure to more than 230MW by 2029 and to more than 800MW by 2031. The additional volume planned for acquisition after 2029 is about 600MW, and about 500MW of that additional volume is planned through DBO. A significant portion of the 800MW target for 2031 will be secured through external operating businesses without direct asset ownership.

To secure AI infrastructure, Samsung SDS is pursuing direct investment in the Gumi AI data center and is taking an equity investment approach by participating in the public-private special purpose vehicle for the National AI Computing Center. In addition, it is reviewing direct investment in new data centers linked to market demand.

Samsung SDS plans to invest a total of KRW 10 trillion by 2031. Of that amount, KRW 5 trillion will be allocated to AI infrastructure such as the Gumi AI data center and the National AI Computing Center, and KRW 1 trillion will be invested in AX, AI services, platforms, and solutions. Another KRW 4 trillion will be deployed for mergers and acquisitions to secure new growth engines and expand global footholds.

The investment funding will come from about KRW 6.6 trillion in cash and cash equivalents, cash generated from operating activities, and about KRW 1.2 trillion in proceeds from convertible bonds issued to a KKR-managed fund. Compared with global technology companies that build AIDC based on large-scale corporate bonds and project financing, this means Samsung SDS can be seen as securing relatively stable financial capacity.

DBO is being cited as a possible path for Samsung SDS to move away from its affiliate-centered business structure. The direct investment and construction model for data centers carries a heavy upfront cost burden, and under direct investment, the timing and scale of investment can also fluctuate depending on internal demand. By contrast, in the DBO business, asset managers and data center developers handle the facility investment, while Samsung SDS provides its technology and operations capabilities in DBO. This DBO structure eases the capital burden of direct ownership while also making it possible to secure external customers.

Data center design and construction ends at the point of completion. By contrast, data center operations generate recurring revenue for as long as the facility is running. During operations, the company may absorb customer demand for cloud migration, and it may also absorb demand for GPU expansion and for enhanced security and network capabilities. Accordingly, it is important to maintain operating contracts over the long term.

However, Samsung SDS's external DBO business is still at an early stage. In Korea, LG CNS has already expanded data center consulting, design, construction, and operations. KT Cloud, LG Uplus, and Lotte Innovate have also expanded their own data center and colocation businesses and entered competition to win corporate customers.

In this situation, Samsung SDS needs to connect the concept design it is currently working on to a full DBO contract. It also needs to secure large external customer cases. Converting the project into a full DBO contract and securing large external customer cases are objective proof points of business competitiveness.

Although the number of AIDC builders is increasing, the number of operators capable of securing GPU and cloud resources after construction and of running customers' AI workloads remains limited. Samsung SDS highlights as its strength the fact that it can provide data center facilities, IT infrastructure, cloud, and enterprise AI services simultaneously.

In that sense, Samsung SDS's move into DBO is about more than adding one more data center. Samsung SDS has operating capabilities for Samsung affiliate data centers and is seeking to sell those capabilities in the external market. Through this, it is pushing to convert one-time construction-oriented revenue into long-term operating and cloud revenue, and the move into DBO is seen as close to a business model transformation. If Samsung SDS connects its first external project to a full contract and operating order, AIDC is expected to emerge as a new growth engine alongside cloud, its existing growth pillar.

Lee was said to have stated that the company is pursuing direct investment in data centers and GPU purchases as well. He was also reported to have said that the company will speed up its data center DBO business and that it has sufficient investment capacity. In addition, he reportedly said the company would soon disclose concrete investment results that the market can feel.

Source: IT DAILY · Lee Jae-young
Original: https://www.itdaily.kr/news/articleView.html?idxno=241585

References

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