SK Telecom Co.,Ltd (NYSE:SKM) Q3 2023 Earnings Call Transcript
SK Telecom Co.,Ltd (NYSE:SKM) Q3 2023 Earnings Call Transcript November 8, 2023
Operator: Good morning and good evening. First of all, thank you all for joining this conference call. And now, we will begin the conference of the fiscal year 2023 Third Quarter Earnings Results by SK Telecom. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2023 third quarter earnings results by SK Telecom.
Hee Jun Chung: Good afternoon. I am Hee Jun Chung, IRO of SK Telecom. Thank you for joining SK Telecom's earnings conference call. Today, we will first deliver our presentation on major events, quarterly earnings highlights, and business performances, which will be followed by a Q&A session. The call is attended by our executives from relevant business divisions, including Jin-won Kim, CFO of SK Telecom, and we are providing some consecutive interpretation for the call. As you may know, I would like to remind you that all forward-looking statements are subject to change depending on various factors, such as market and macro situations. Let me now present our CFO.
Jin-won Kim: Good afternoon. This is Jin-won Kim, CFO of SK Telecom. In September, SK Telecom announced the AI Pyramid strategy to become a global AI company. It aims to lead industrial innovation and achieve its vision of a global AI company through efforts to strengthen its own capabilities to deepen customer relationships by advancing its own AI technologies and launching AI services and through cooperation with diverse domestic and foreign partners, including the K-AI Alliance, the global telco AI Alliance, Anthropic, and OpenAI. We ask for your continued interest and support for our new endeavors. Now let me report on the consolidated financial results for Q3 of 2023. Thanks to improved earnings of SK Telecom and SK Broadband, consolidated revenue reported KRW 4,402.6 billion, up 1.4% year-over-year and 2.2% Q-on-Q.
Operating income in Q3 posted KRW 498 billion, up 7% year-over-year and 7.5% Q-on-Q. Net income posted KRW 308.2 billion, up 25.5% year-over-year but down 11.4% Q-o-Q due to the base effect of one-off gains in Q2. On a nonconsolidated basis, revenue posted KRW 3,148.4 billion, thanks to gains in roaming business. Operating income and net income reported KRW 407.1 billion and KRW 250.4 billion, respectively. Let me now turn to Q3 business highlights and strategic directions in accordance with the AI Pyramid strategy. First, serving as the foundation of the AI Pyramid, AI infrastructure is an area where SK Telecom's technological capabilities are concentrated, including AI Data Centers, AI Semiconductor, and Multi-LLM. Data center revenue continued its growth trend, up more than 30% year-over-year in the third quarter.
Preparations for the opening of new data centers are well underway to meet the growing demand for data centers triggered by the AI market. We plan to introduce energy-saving solutions like emergent cooling system and hydrogen fuel cells and enhanced data center operational efficiency through AI-based data center infrastructure management. Sapeon, an AI semiconductor company established by SK Telecom will launch a next-generation inference AI chip X330 at the end of this year. X330 has approximately twice the computation of performance and 1.3x the power efficiency compared to the latest inference chips in the market. Sapeon will also cooperate with diverse companies to secure competitiveness in software. SK Telecom is also pursuing a multi-LLM strategy where a 2-track approach is taken to secure diverse LLM lineup, an overall platform that encompasses the LLMs. To this end, we're advancing our own LLM based on our AI technology brand A.X, and high-quality data accumulated over several decades.
Simultaneously, we are collaborating strategically with a wide range of domestic and foreign AI companies, including Anthropic, OpenAI, and Konan Technology. Currently, diverse projects are underway, and during next year, the Global AI Platform Corporation newly established in the U.S. is planning to release an LLM customized for telcos and launch an AI platform to support effective utilization of the multi-LLM. In the area of AIX, which is the middle layer of the AI Pyramid, we will innovate customer experience and boost productivity by applying AI to our internal core businesses such as MNO, broadband, and enterprise, while expanding the use of our AI capabilities to various external business areas such as mobility, AI healthcare, and media to create added value.
A skyline view of futuristic telecommunications towers.
Among the internal areas of AIX, our MNO business has an established customer base with 15.15 million 5G subscribers as of the end of September. We will solidify our superb mobile business competitiveness by using AI technology to conduct marketing, establish AI-based mobile networks, and enhance operational efficiency. As of the end of September, the Pay-TV subscribers and broadband subscribers of SK Broadband reached 9.52 million and 6.87 million, respectively. Going forward, SK Broadband's Pay-TV service will evolve into an AI TV that offers diverse AI services such as AI curation and AI home. As for enterprise business, AICC, big data analytics platforms, and custom and platform-type generative AI models will be major growth drivers of the market.
Here, the multi-LLM will be combined with AI solutions like Vision AI, Language AI, and Big Data AI. The cloud business is on track to meet its annual target with revenue in Q3, growing nearly 40% year-over-year. Moving on to the external areas for AIX. SK Telecom signed a collaboration agreement with Joby Aviation in September to jointly participate in the K-UAM grand challenge, which marks a concrete step to secure a stable supply of UAM aircraft for the first commercialization of UAM service in Korea by 2025. We will combine AI technology and UAM to lead the way in an era of AI mobility that will change the paradigm of mobility. In addition, X-caliber, an AI-based veterinary X-ray analysis solution was launched only a year ago, but it is currently used in over 300 veterinary clinics around over country, making it a representative veterinary AI service.
SK Telecom is further enhancing the performance of X-caliber and pursuing global expansion by entering a partnership with Anicom Holdings, the largest provider of pet insurance in Japan in October. In the AI service area located at the top of the AI Pyramid, we will continue to promote A. (A dot) service, which was officially launched in September and pursue global expansion through the development of personal AI assistance or PAIs for the global market. We believe that PAIs and metaverse services will be integrated in the future, and the next commerce services, including subscription will ultimately be part of the AI service domain. AI A. will evolve into a personal AI assistant by innovating customers' communications experience and expanding the use of AI services for daily lives.
Capitalizing on our know-how and domestically proven AI services, including call recording and summary, sleep management, and real-time interpretation during a call, which will be launched soon, we will localize and advance these services through cooperation with the global telco AI alliance members. Then we will launch PAIs in many parts of the global markets simultaneously to quickly gain leadership in the AI service market. ifland has attracted nearly 50% of MAU from overseas and global cooperation with various partners, including Deutsche Telekom and T-Mobile U.S. is on track. The large subscriber base of ifland will begin to use the in-app transaction-based economic system that was introduced in October, which will facilitate the creation of a virtual cycle of premium content production and consumption as well as monetization, thereby contributing to the expansion of the Metaverse platform.
Within the list of impactful partners such as YouTube Premium and preparing to include Nasform, also, T Deals' GMV in the first half of 2023 surpassed KRW 100 billion. We are preparing for next-generation commerce. Finally, the Board determined the third quarter EPS to be the same as the previous quarter at KRW 830. In addition, as we are well underway, we will complete the share buyback within the 6 months of the Trust contract [Technical Difficulty] --to do our best to ensure that corporate value and shareholder value will be maximized through a transformation into a global AI company. [Technical Difficulty] --continued support and encouragement. Thank you.
Hee Jun Chung: We will now begin the Q&A session.
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