NEW YORK - SMART Global Holdings, Inc. (NASDAQ: SGH), a global enterprise solutions provider, disclosed today that SK Telecom (NYSE: SKM), part of SK Group, has committed to a $200 million preferred equity investment in the company. The capital injection is aimed at bolstering SGH's AI enterprise offerings under its Penguin Solutions brand.
The two companies are set to collaborate on enhancing global AI factory and data center solutions, with a focus on advanced memory products and AI edge servers. Mark Adams, CEO of SGH, expressed enthusiasm for the partnership, highlighting the potential for creating stakeholder value through strategic collaboration with SKT.
Ryu Young-sang, CEO of SKT, noted SGH's proven track record in deploying AI infrastructure solutions, anticipating that the synergy between SKT's technology portfolio and Penguin's AI data center solutions will amplify both companies' capabilities.
The investment terms specify that SKT will acquire 200,000 preferred shares at a conversion price of $32.81 each, reflecting a 30% premium over the recent average closing price of SGH shares. These shares will carry an annual 6% dividend, payable in cash or kind at SGH's discretion. SGH also retains redemption rights for these shares.
The closure of the transaction is expected by the end of 2024, pending customary closing conditions. Details of the investment were filed by SGH in a Current Report on Form 8-K.
SK Telecom has a history of pioneering in the mobile industry and is now transitioning into an AI-focused company. Their partnership with SGH is part of a strategic move to enhance its position in AI semiconductor, infrastructure, and services.
SGH is recognized for designing and deploying high-availability solutions across various sectors, including computing, memory, and LED. Their commitment to innovation is underscored by Penguin Solutions' management of over 75,000 GPUs, one of the largest such deployments globally.
In other recent news, SK Telecom (SKT) has reported a solid performance in Q1 2024, with a 2.3% year-over-year increase in consolidated revenue to KRW 4,474.6 billion. The firm's operating income stood at KRW 498.5 billion, while net income reached KRW 361.9 billion. These financial results come as SKT outlines its ambition to transition into a global AI company, supported by its AI Pyramid Strategy and the growth of its data center business. Moreover, the firm has established the Global Telco AI Alliance (GTAA) as part of its strategic initiatives.
Despite facing constraints in terms of resources for growth investments after dividends, SKT remains dedicated to expanding its customer base and revenue through marketing campaigns, differentiated services, and strong enterprise business performance. The enterprise business, in particular, grew by 9% YoY, driven by data center utilization and cloud contracts. These are recent developments that underscore SKT's commitment to innovation and shareholder value.
InvestingPro Insights
SK Telecom's (NYSE: SKM) strategic investment in SMART Global Holdings (NASDAQ: SGH) underscores the South Korean company's commitment to expanding its AI and enterprise solutions. InvestingPro data reveals SK Telecom's strong financials and strategic market positioning, which may bolster confidence in the partnership's potential for success.
InvestingPro Tips indicate that SK Telecom has a robust Piotroski Score of 9, signaling sound financial health. Additionally, the company has been aggressively buying back shares, which often reflects management's belief in the company's undervalued stock and a commitment to delivering shareholder value. With a current market capitalization of $8.05 billion and a P/E ratio standing at a modest 9.94, SK Telecom presents itself as a potentially undervalued player in the market, especially considering its low PEG ratio of 0.55, which suggests that the company's earnings growth is not fully reflected in its current stock price.
The company's solid financial performance is further evidenced by last twelve months' revenue of $13.17 billion, with a gross profit margin of 72.41%, indicating strong operational efficiency. Moreover, SK Telecom's management has a history of rewarding shareholders, having raised its dividend for three consecutive years and maintaining dividend payments for 32 consecutive years.
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The partnership between SK Telecom and SGH has the potential to leverage SK Telecom's financial stability and strategic initiatives, such as share buybacks and consistent dividend payments, to support innovative AI enterprise solutions that could redefine both companies' trajectories in the technology sector.
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