Lotte Innovate, the IT services affiliate of Lotte Group, is accelerating efforts to restore profitability by resetting its business priorities around artificial intelligence (AI) and data centers. "Kalybus," which Lotte Innovate acquired in 2021 to enter the Metaverse (virtual convergence world) business, appears to have been effectively excluded from future core businesses. As the Metaverse fever cooled and Kalybus failed to escape losses, the company is seen to have begun restructuring and scaling back the business.
According to the Financial Supervisory Service's electronic disclosure system on the 1st, Lotte Innovate removed "Metaverse" and added "physical AI" in the main business overview of this year's semiannual report. The company's three revenue-driving businesses are SM (system management), SI (system integration), and electric-vehicle charging, with SI revenue at 419.9 billion won, accounting for 76% of the total. As recently as the first-quarter business report, Lotte Innovate wrote that the SI business "includes the Metaverse and AI businesses," but in the latest semiannual report, Metaverse was removed and the wording changed to "includes new technology–based businesses such as physical AI."
In the semiannual report's SI sales strategy section, Lotte Innovate also defined AI, cloud, and data centers as core businesses and presented a blueprint to expand market share steadily by growing related areas. Metaverse, cited as a new growth area in the previous first-quarter report, was omitted from the semiannual report.
With the Metaverse business falling short of initial expectations, Lotte Innovate is seen to have moved to reorganize related operations. The global Metaverse market exploded during COVID-19 as contactless services expanded. In line with this trend, in July 2021 Lotte Innovate acquired the Virtual Reality (VR) content company VisionVR for 12 billion won and made it a wholly owned subsidiary. After changing its name to Kalybus, it launched a Metaverse platform in Aug. 2024, but as it struggled to generate revenue, it became Lotte Innovate's "sore thumb."
In the first half, Kalybus posted 1.684 billion won in revenue and an operating loss of 6.9 billion won. Revenue fell 38.6% from a year earlier, while the deficit narrowed 35%.
Until now, Lotte Innovate had maintained that initial investment burdens were inevitable until Kalybus settled onto a stable growth path, and it kept Kalybus even as the three domestic telecom companies and game companies exited the Metaverse business. It also took part in the world's largest IT trade show, CES, for two consecutive years to actively promote Kalybus' Metaverse technology.
The funds Lotte Innovate has injected into Kalybus so far total 64 billion won. Right after acquiring it for 12 billion won in 2021, the company invested an additional 7 billion won, followed by paid-in capital increases of 25 billion won in 2023 and 20 billion won in 2024. However, as of the first half, 35.9 billion won of the investment in Kalybus has been recognized as an impairment loss. An impairment loss is an accounting treatment that records a loss on the financial statements when an asset's actual value falls significantly below its book value. The book value of Kalybus' remaining investment stands at about 28.1 billion won, more than halved from the initial investment.
Accordingly, instead of growing Kalybus into a high-spec Metaverse platform, Lotte Innovate revamped the business model to support shopping experiences using AI and 3D technologies by linking it to the group's existing retail businesses such as LotteON and Lotte Himart. A company official said, "We will connect Kalybus' AI and 3D technologies with the commerce areas of Lotte Group affiliates and, by advancing related capabilities, support AX (AI transformation) across various industries."
Cooling global demand and investment related to the Metaverse is also seen to have influenced Lotte Innovate's reprioritization. Notably, Meta, which even changed its name from Facebook in 2021 with the determination to nurture the Metaverse as a core business, carried out restructuring after its related unit, Reality Labs, racked up a cumulative loss of $70 billion (about 103 trillion won) since its establishment, and decided to concentrate capabilities on AI and wearable devices.
Under Chairman Shin Dong-bin's leadership, Lotte Group is accelerating a companywide AI transformation and a profitability-focused management stance. Attending the CEO AI Academy in Jun., Shin said, "AX is not a choice but the top priority tied to the group's survival," emphasizing the importance of new AI businesses including physical AI. As recently as 2024, Metaverse was one of the four future businesses Shin highlighted for Lotte Group, but this year there was no mention of Metaverse.
Accordingly, Lotte Innovate's main businesses appear to have shifted to AI, cloud, data centers, and physical AI. The change has translated into an actual recovery in the company's profitability. In the first half, Lotte Innovate posted 555.7 billion won in revenue, down 1.7% from a year earlier, while operating profit rose 47.5% over the same period to 21.1 billion won. Selective order-taking focused on business viability, centered on data center design, build, and operate (DBO), drove the profitability improvement, the company said.