LS Electric, Korea's leading power distribution equipment maker, recently flew power facilities such as data center switchboards for delivery to U.S. big tech corporations, instead of shipping them by sea. Power equipment weighing from hundreds of kilograms (kg) to several tons (t) is usually transported by sea, and using air raises the expense by more than 30%. It is a loss in terms of profitability, but the company decided to do it to meet the delivery deadline. When LS Electric spent its own money to use air transport, which was not planned, the U.S. client was taken aback and reportedly gave high marks to the sincerity of the Korean corporations.
Orders from overseas big tech and transmission system operators, which were minimal three years ago, have surged, turning the North American business of Korea's three power equipment corporations (HD Hyundai Electric, LS Electric, Hyosung Heavy Industries) into a goose that lays golden eggs. In the past, the global power grid market was a fortress built over decades by a few strong European players such as Siemens and Schneider.
But the advent of the artificial intelligence (AI) era has changed the game. The global demand to replace aging power grids and the AI data center boom have combined to create acute supply shortages. Seizing this opening, Korean corporations that can custom-build to meet rapidly changing big tech data center specifications and keep to delivery schedules have been chosen as optimal partners. Korean corporations have penetrated the niche in the high-end supply chain long led by European companies with unrivaled technology and flexibility.
Park Sung-jun, head of LS Electric's data center business development team, said, "There has never been an opportunity for a Korean power equipment company to supply equipment this essential to mission execution in the United States," and "Korean companies' competitiveness has risen to the point where they can stand shoulder to shoulder with traditional European power equipment powerhouses."
◇ Korea's three power equipment companies see North American business drive all-time record results
According to the industry on the 11th, last year's North American sales and orders for Korea's three power equipment corporations all hit record highs. HD Hyundai Electric, which holds the No. 1 share in ultra-high-voltage transformers in Korea, posted about 554.8 billion won in sales in the North American market in the fourth quarter of last year alone. It earned 47.7% of its total fourth-quarter sales (1.1632 trillion won) from North America, close to half. This is more than double the North American share (22.3%) in the same period a year earlier.
On this rapid growth, Hwang Jong-hyun, executive director and CFO of HD Hyundai Electric, said at a fourth-quarter conference call on the 6th, "As inventory deliveries by our Atlanta unit in the U.S. proceeded in large volume, the North American share increased significantly, and as a result, the operating margin rose to as high as 27.6%."
Talks with big tech on volumes extend out five years. Ok, executive director in charge of strategic overseas sales at HD Hyundai Electric, said, "We have reached substantial agreement with big tech corporations that operate large data centers in the United States on supplying power distribution equipment," and "From this year through 2028, significant orders and sales will occur for distribution equipment as well, and we are discussing orders linking distribution and ultra-high voltage through 2030."
Buoyed by large contracts with global big tech, LS Electric's order backlog topped 5 trillion won at the end of last year for the first time since its founding. That is a surge of 45% from a year earlier. Of last year's new orders (about 3.7 trillion won), those for data centers reached 1 trillion won, and securities analysts said 80% of that came from overseas projects with North American big tech such as Microsoft (MS).
LS Electric's ultra-high-voltage transformer volumes are mostly sold out through 2029. For switchboards and medium- and low-voltage transformers used in data centers, orders are pouring in faster than production can keep up.
Hyosung Heavy Industries also benefited significantly from margin improvements in the North American market. The operating margin of the heavy industries (power equipment) institutional sector reached 20.2% in the fourth quarter of last year, breaking the "magic 20%" barrier for the first time. North America accounted for 37% of total sales of 1.2127 trillion won, up 9 percentage points from a year earlier.
Securities analysts estimate that the net margin of HICO, Hyosung Heavy Industries' North American production unit, exceeded 35% last year. Orders were also strongest in North America, which accounted for 38% of new fourth-quarter orders totaling 1.9658 trillion won.
◇ "If it's not fixed within 4 hours, pay damages"... Power companies boost local response capability
These companies are accelerating efforts to expand local production capacity to handle surging overseas demand. Because even a brief halt in data center operations is followed by astronomical losses, maintenance contracts with big tech corporations are known for being demanding.
A representative condition is the "4-hour call-out" service. When a problem occurs, an engineer must arrive on site and take action within four hours, and a hefty penalty is imposed if this is violated. No matter how good the technology, if the physical distance is too great, this "golden time" cannot be met. Going beyond simply exporting products, establishing a local production foothold and an immediate response system has become a key condition for winning big tech orders.
To meet demand for power distribution equipment installed inside data centers, LS Electric is building a large production base of 46,000 square meters in Bastrop, Texas. The judgment is that the existing Utah plant alone cannot handle the flood of big tech orders. The company plans to develop the site into a core hub dedicated to producing data center switchboards and after-sales service to strengthen its grip on the North American market.
HD Hyundai Electric is bolstering the responsiveness of its Alabama plant to target the U.S. power grid market, which is under strain from data center expansion. Executive director Ok said, "Demand for new 765 kV ultra-high-voltage transmission lines, which had not existed in the U.S. market for the past 30 years, has been surging since last year," and "To respond to increasing customer requests, we are building facilities so that production is possible at both the Ulsan and Alabama plants." Hyosung Heavy Industries is also boosting capacity by expanding its Memphis, U.S., plant, a production base for 765 kV transformers.