Major domestic IT services corporations continued their top-line growth in the first quarter this year on rising demand for artificial intelligence (AI) and cloud, but profitability diverged. LG CNS posted double-digit growth in operating profit from a year earlier, while Samsung SDS saw profitability weaken due to sluggish logistics and one-off retirement benefit expense related to a change in the retirement pay calculation standard. Hyundai AutoEver, which has grown rapidly over the past three years, recorded its largest-ever first-quarter sales, but operating profit plunged as expense increased mainly in the vehicle software (SW) institutional sector.
According to the Financial Supervisory Service's electronic disclosure system on the 4th, LG CNS's first-quarter sales rose 8.6% on-year to 1.315 trillion won. Operating profit increased 19.4% over the same period to 94.2 billion won. The operating margin was 7.2%, up 0.7 percentage point (p) from a year earlier.
With the AI and cloud business, which accounts for about 58% of total sales, leading results, smart engineering and digital business services also grew evenly, achieving both top-line expansion and profitability improvement, according to analysis. Song Kwang-yoon, LG CNS chief financial officer (CFO), said on the first-quarter earnings conference call on the 30th, "Despite weakening investment sentiment across the real economy, we achieved strong results by expanding external business."
In particular, profitability is seen to have improved as the company expanded external orders for AX (AI transformation) projects and cloud infrastructure across diverse industries such as public and defense, finance, manufacturing, pharmaceuticals and bio, shipbuilding, and defense industry. The AI data center DBO (design, build, operate) business also continued solid growth, lifting cloud-related sales. Kim Tae-hoon, head of LG CNS's AI Cloud Division, said, "At the Samsong data center alone, we won over 1 trillion won in projects, the largest in our history."
In contrast, Samsung SDS, the largest IT services corporations in Korea, recorded first-quarter operating profit of 78.3 billion won, down 70.8%. While the cloud business grew on AX demand, pushing sales up 3.9% to 3.3529 trillion won, operating profit fell as a one-off retirement benefit expense of 112 billion won was reflected due to a change in the retirement pay calculation standard, the company said.
However, even excluding the one-off retirement benefit provision, the operating margin was 10.4%, which was shown to have declined by 3.7 percentage points (P) from a year earlier. Lee Sang-heon, an iM Securities analyst, said, "Operating margin appears to have fallen significantly due to factors such as sales decline from the completion of large projects for affiliates, increased investment in AI platforms and infrastructure, investment in public-sector collaboration solutions, and intensified price competition in external business."
Weakness in the logistics business also appears to have affected first-quarter profitability. Due to reduced cargo volume from slowing logistics demand and lower freight rates, first-quarter sales in the logistics business institutional sector fell 7.8% on-year to 1.7424 trillion won.
For Hyundai AutoEver, which released its first quarterly results since CEO Ryu Seok-mun took office, first-quarter sales rose 12.3% year over year to 935.7 billion won, but operating profit fell 20.7% over the same period to 21.2 billion won.
Despite the performance of the Enterprise IT institutional sector, which covers system integration (SI) and IT outsourcing (ITO), profitability deteriorated as expense occurred in the vehicle SW institutional sector. Hyundai AutoEver said operating profit decreased as the timing of contracts with some customers was adjusted to after the second quarter amid geopolitical risks such as U.S. tariff, and as upfront investment related to software-defined vehicles (SDV) acted as an expense burden.
The industry plans to continue top-line growth in the second half by putting AI at the forefront and to move in earnest to expand new businesses such as robots. Samsung SDS President Lee June-hee said on last month's earnings conference call, "To push our AI full-stack strategy, we will invest 10 trillion won by 2031." Specifically, it plans to invest 5 trillion won in the AI infrastructure institutional sector, including the Gumi AI data center, 1 trillion won in AI services and platforms and solutions, and 4 trillion won in strategic mergers and acquisitions (M&A). To that end, it secured 1.2 trillion won in new funding in cooperation with global investment corporations KKR and 6.6 trillion won in cash and cash-equivalent asset.
The market projected that Samsung SDS will secure growth drivers based on a 200-megawatt (MW) AI data center business, including the Gumi AI data center and the national AI computing center, and that profitability will recover after the second quarter. The data center DBO business, which is being promoted in earnest starting this year, is also expected by the company to become a new source of sales.
LG CNS plans to grow its physical AI business, chosen as a future growth driver, while continuing to win large orders related to AX transformation, cloud, and data center DBO. Starting in the second half, the company will push a "full-stack RX (robot transformation) service" that encompasses industry-specialized robot foundation models (RFM) and humanoid robots to accelerate robot commercialization. It will also expand partnerships with global big tech such as OpenAI and Palantir.
For Hyundai AutoEver, with continued growth expected in the Enterprise IT institutional sector due to internal IT investment by Hyundai Motor Group, the market also expects benefits to materialize in earnest starting in the second half from the group's data center investment and expansion of the robot control business. Kim Gwi-yeon, an analyst at Daishin Securities, said, "Profitability was sluggish in the first quarter due to the seasonal slow period at the start of the year, but we expect mid- to long-term growth momentum to continue as Hyundai Motor's mass production of the humanoid Atlas and external cooperation on Autonomous Driving expand Hyundai AutoEver's role."