Samsung SDS, the IT services corporations of Samsung Group, has been pushing to reshape its business this year by putting cloud expansion at the forefront, but its reliance on internal transactions remains above 80%, leaving overall growth stagnant. As the shift to artificial intelligence (AI) accelerates, global corporations are actively expanding overseas, while Samsung SDS still depends on an affiliate-centered business structure. With its long-term growth strategy unclear, some say it is falling short of market expectations despite favorable conditions such as the recent semiconductor recovery and increased AI investment.
◇ expanding the "cloud" business, but internal transactions at 81.2%
According to the Financial Supervisory Service's electronic disclosure system on Dec. 4, Samsung SDS posted revenue of 3.3913 trillion won and operating profit of 232.3 billion won in the third quarter of this year. Those figures were down 5.0% and 8.1%, respectively, from a year earlier. Revenue in the IT services institutional sector fell 2.1% to 1.5957 trillion won, but cloud revenue stood out, rising 5.9% to 674.6 billion won. In the first half of this year, Samsung SDS's cloud revenue was 1.3181 trillion won, up 21.3% from a year earlier. As a result, cloud's share of IT services revenue jumped from the 6% range in 2022 to 40% in the first half of this year.
This trend suggests Samsung SDS is moving away from a system integration (SI)-centered business model and expanding into areas such as cloud and AI infrastructure. In the AI era, demand for infrastructure to support large-scale computation and data processing is increasing, making cloud a core foundation. Lee June-hee, head of the Cloud Services Division (executive vice president) at Samsung SDS, said on the third-quarter earnings call that "this year's cloud revenue is targeted to rise about 20% from a year earlier to the upper-2 trillion won range."
However, Samsung SDS's revenue structure still centers on internal transactions. In the first half of this year, Samsung SDS posted revenue of 7.0017 trillion won, of which internal transactions accounted for 5.6906 trillion won, or 81.2%. The core of those internal transactions is Samsung Electronics. Revenue dependent on Samsung Electronics during the same period was 1.3006 trillion won, accounting for 22.85% of internal transactions. The company's internal transaction ratio has hovered around 80% for the past several years. Although cloud revenue is increasing, most of the growth appears to come from IT transformation demand within Samsung Group.
This diverges from global cloud corporations. Amazon Web Services (AWS), Microsoft (MS), and Google are signing long-term contracts with governments and corporations in various countries and increasing market share through data center construction adapted to local regulations and cooperation with local partners. In Korea, some IT services corporations are lowering their internal transaction ratios to the 50% to 60% range and increasing external revenue. As of the first half of this year, LG CNS's internal transaction ratio was 53.2%, LOTTE Innovate's was 64.9%, and SK AX is also seen in the industry at around the 60% range.
◇ one year since Lee June-hee took the helm, no clear results
It has been just one year since Lee June-hee began leading Samsung SDS, but some say the company has not delivered clear results contrary to expectations. Upon taking office, Lee emphasized expanding new businesses such as AI, cloud, and security to strengthen global competitiveness, but critics say profits came from expanding business within the group. In October, Samsung SDS signaled its intention to enter global markets based on a partnership with OpenAI, but there have been no visible results yet, such as increased external revenue or overseas orders.
There are also projections that the AI-specialized data center Samsung SDS is pushing to complete by 2028 will further increase dependence on affiliates. In Nov. last year, Samsung SDS bought part of the Gumi Plant 1 site in North Gyeongsang Province from Samsung Electronics for 21.5 billion won and is pursuing construction of an AI data center. The facility is to be reorganized into a dedicated data center with power and cooling infrastructure for high-performance AI computation, and most demand is expected to come from inside the group, including Samsung Electronics. Rather than expanding external demand, it would serve as AI infrastructure support for Samsung Group.
The stock has also been sluggish. As of the close on Dec. 3, Samsung SDS shares were 172,100 won, up 24.7% from a year earlier (138,000 won). But considering that the Korea Composite Stock Price Index (KOSPI) rose 61.4% over the same period, Samsung SDS failed to absorb market expectations despite a favorable environment this year, including an improvement in the semiconductor cycle and increased AI investment.
Lee Sung-yeob, a professor at Korea University's Graduate School of Management of Technology, said, "In the case of Samsung SDS, most demand is concentrated among affiliates, so there are limits to comparing it with global cloud corporations targeting the entire world," while adding, "Providing services to group companies is positive for stable revenue generation, but there are limits to market expansion." He added, "It needs to strengthen investment in technology and services to secure global competitiveness."