AI and Cloud Revolutionize South Korea

1. Summary

• South Korea's IT sector, spearheaded by companies such as Samsung SDS, LG CNS, and SK C&C, is experiencing transformative growth driven by the adoption of AI and cloud technologies. Key advancements include GPU clustering, which significantly boosts AI research and computing efficiency, and the development and deployment of generative AI across industries. Analyzed data from the second quarter of 2024 shows an upward trend in economic performance attributed to these technologies, with Samsung SDS, for example, seeing a marked increase in operating profits and revenue. Furthermore, cloud-based services are rapidly growing in popularity, with new strategies such as multi-cloud approaches gaining traction to mitigate risks associated with system outages. Cutting-edge implementations, like Naver Cloud's HyperCLOVA X platform, reflect the nation's ambition to integrate AI into public and private sectors, facilitating a digital transformation.

2. AI Research and GPU Clustering

• 2-1. Importance of GPUs in AI Research

• The importance of GPUs in AI research stems from their ability to handle parallel processing, which is crucial for deep learning and high-performance computing tasks. As the demand for computational resources has surged due to advancements in AI and deep learning, GPUs have become essential as they are optimized for repetitive parallel tasks, making them integral to advanced AI research and large-scale data processing.

• 2-2. Samsung SDS's R&D Cloud for AI

• Samsung SDS has developed the R&D Cloud for AI to efficiently utilize GPUs required for AI research. This platform integrates GPUs into a single clustering management system, allowing for the flexible allocation of resources based on user demand. This system minimizes idle time of resources and maximizes usage efficiency. Additionally, it supports automatic setup to reduce the time required to build AI development environments and introduces distributed learning techniques compatible with various AI frameworks for efficient complex calculations.

• 2-3. GPU Clustering and Job Scheduling Technologies

• The GPU clustering technology of Samsung SDS's R&D Cloud for AI is based on Kubernetes, enabling parallel processing of various AI tasks in a unified environment. Job scheduling technology is essential for allowing multiple users to efficiently utilize the clustered GPU resources. It allocates appropriate GPU resources according to the characteristics of each task and processes jobs in an optimal sequence to maximize resource utilization. Additionally, distributed computing technology allows for the efficient execution of large-scale model computations by leveraging multiple GPUs simultaneously, which would be difficult to achieve with a single GPU.

3. Economic Impact of Cloud and Generative AI

• 3-1. Performance of Major IT Service Companies in Q2 2024

• In the second quarter of 2024, major South Korean IT service companies, including Samsung SDS, LG CNS, and SK C&C, reported improved performance. Samsung SDS achieved an operating profit of 220.9 billion KRW, a 7.1% increase compared to the previous year, with a revenue of 3.369 trillion KRW, marking a 2.4% rise. LG CNS recorded its highest performance to date with a revenue of 1.4496 trillion KRW, up 5.6% year-over-year, and an operating profit increase of 21.0% to 137.7 billion KRW. SK C&C also experienced growth, reporting an operating profit of 32.2 billion KRW, a 13.78% increase from the previous year, and a revenue of 630.2 billion KRW, which represents a 0.17% increase.

• 3-2. Economic Effects of Increased Demand for Cloud and Generative AI

• The surge in demand for cloud services and generative AI positively impacted the revenues of companies such as Samsung SDS, LG CNS, and SK C&C. Specifically, Samsung SDS's revenue from cloud services grew by 25% compared to the previous year, driven by the subscription-based GPU services for high-performance computing and generative AI. LG CNS strengthened its Managed Service Provider (MSP) business by collaborating with global cloud service providers AWS and Microsoft, while pushing forward AI initiatives in the public, finance, and manufacturing sectors. SK C&C continued its growth trajectory by establishing digital transformation systems tailored to industries such as finance, manufacturing, and pharmaceuticals.

• 3-3. Industry-Specific AI and Cloud Services

• Samsung SDS engaged in building AI platforms for the financial sector and opened a public cloud data center in Daegu to enhance its public cloud business. LG CNS provided specialized AI services for manufacturing companies, customer consultation chatbot services for commercial banks, and administrative support services for government entities. SK C&C launched an 'AI Landing Zone' to support businesses in utilizing AI according to their cloud environment needs, thereby reinforcing digital transformation efforts that consider the unique characteristics of each enterprise.

4. Emergence and Challenges of Multi-Cloud Strategies

• 4-1. Need for Multi-Cloud Due to IT Outages

• Recent global IT crises have significantly impacted companies relying heavily on cloud services. Issues with specific cloud services can lead to widespread disruptions affecting entire systems. This situation has highlighted the necessity for adopting multi-cloud strategies to distribute risk effectively, ensuring that companies can maintain operations even when one cloud service experiences problems. A notable incident, the MS-CrowdStrike error, serves as a stark example that has increased attention towards multi-cloud adoption among domestic cloud companies.

• 4-2. Domestic Cloud Companies' Response Strategies

• In response to the recent IT crises, domestic cloud companies are exploring strategies to enhance service resilience. NHN Cloud has indicated that they are considering implementing a dual-cloud strategy leveraging domestic cloud services. The CEO, Kim Dong-hoon, emphasized the anticipated rise in demand for domestic cloud services due to this crisis. Companies like Gabia are also providing multi-cloud management services alongside their own cloud offerings to support redundancy strategies. Other Managed Service Providers (MSPs) such as Megazone Cloud and Bespin Global, alongside larger entities like Samsung SDS and LG CNS, are focusing on supporting multi-cloud adoption.

• 4-3. Cost Issues in Multi-Cloud Adoption

• While adopting multi-cloud strategies can enhance system stability, companies face the challenge of increased costs associated with this strategy. The dual cost burden of maintaining multiple cloud services is a significant hurdle to broader multi-cloud adoption in South Korea. Although cheaper domestic cloud options could provide a solution, the financial implications of dual sourcing still pose an ongoing challenge. In light of this, the government is advocating for cloud diversification within its basic disaster management plans, encouraging measures to improve interoperability among domestic clouds to promote multi-cloud implementations.

5. Advancements and Applications of Generative AI

• 5-1. Current Technologies and Trends in Generative AI

• Generative AI encompasses several key technologies, including large language models (LLMs), transformers, and generative adversarial networks (GANs). The North America region led the market with a 40.2% market share in 2022, while the Asia-Pacific region is expected to grow rapidly with a projected annual growth rate of 36.5%. Key technologies include LLMs that understand and generate text data, and GANs, which have diverse applications in various industries. Multi-modal AI, capable of processing text, images, and voice data, is also gaining traction.

• 5-2. Industry-Specific Applications of Generative AI

• Generative AI is being utilized across various sectors. In healthcare, it aids in medical image analysis, diagnostics, drug development, and personalized treatment. The entertainment industry employs generative AI for video games, music production, and movie script generation. In finance, it enhances efficiency in loan assessments, advertisement creation, and investment recommendations. For example, Samsung SDS has utilized AI to summarize financial documents and provide quicker investment advisory services.

• 5-3. Need for AI Regulation and Governance

• As AI technology expands, the risks of misuse and distortion increase, highlighting the necessity for AI governance. AI governance encompasses structured organizations, policies, and processes aimed at preventing adverse effects and ensuring trust. The United States and EU are preparing AI regulations, and South Korea's Ministry of Science and ICT has announced a digital bill of rights emphasizing data copyright protection. Moreover, effective governance systems are critical for financial AI to prevent hallucination phenomena and other errors.

6. AI Management Systems and Certifications

• 6-1. International Standards for AI Management Systems

• AI Management Systems are evaluated against international standards set by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). These standards provide a framework for organizations to develop and operate AI products and services responsibly, ensuring risk management and ethical considerations are embedded in their processes.

• 6-2. Samsung SDS's ISO/IEC 42001 Certification

• On August 8, 2024, Samsung SDS became the first company in the IT service industry to obtain the ISO/IEC 42001 certification for its AI Management System. This certification specifically pertains to Samsung SDS's generative AI services, namely FabriX, Brity Copilot, and Brity Automation. The Korea Standards Association (KSA) conducted a comprehensive review of Samsung SDS's AI management policies, AI management system, and AI risk management practices before awarding the certification.

• 6-3. Implementation of AI Management Systems

• Samsung SDS has developed a robust AI Management System that includes established guidelines for the development, operation, and management of AI products and services. This framework integrates risk assessments and digital responsibility management systems to address potential ethical issues and risks that may arise during the development and deployment of AI technologies.

7. Public Projects and Government Support for AI

• 7-1. Naver Cloud’s Super Large AI Platform

• Naver Cloud has been continuously selected for the 'Super Large AI' support project led by the Ministry of Science and ICT. This recognition highlights the capabilities and infrastructure of Naver Cloud's large-scale AI platform, HyperCLOVA X, within public projects. Naver Cloud is involved in various public sector tasks, including research and development support services for the Economic and Social Research Council, smart firefighting safety services for the Seoul Fire and Disaster Headquarters, and specialized services for young farmers developed by the Rural Development Administration.

• 7-2. Government Initiatives for AI in Public Services

• The South Korean government has been promoting the normalization of AI usage in public services through various initiatives. Since 2022, the Ministry of Science and ICT has been driving the ‘AI Diffusion Based on Department Cooperation’ initiative aimed at innovating public services. The budget for related projects was expanded significantly to 24 billion KRW in 2023, up from 8 billion KRW in 2022. Major companies like Naver Cloud, KT, NHN, and Samsung SDS are actively participating in these initiatives, contributing to the advancement of AI applications within the public sector.

• 7-3. Increased Budget for Public AI Utilization

• The government has substantially increased its budget for public AI initiatives to accelerate innovation in public service delivery. The 2023 budget for related AI projects is set at 24 billion KRW, which is a significant increase from the previous year's budget of 8 billion KRW. This increased investment reflects the government's commitment to enhancing AI utilization across public services and indicates the rising importance of AI technology in governmental operations and services.

8. Success Stories in AI and Cloud Integration

• 8-1. Estraffic's Smart Traffic System

• Estraffic, having separated from Samsung SDS, developed a smart traffic system that has successfully entered the U.S. market. The company installed a traffic system at 98 subway stations in Washington D.C., addressing the issue of fare evasion. It has also received requests for system implementation from cities like San Francisco. As a result, Estraffic's revenue in 2023 saw an 11% increase compared to the previous year, totaling 147.1 million won, alongside a 77% increase in operating profit to 17.3 billion won. Furthermore, they are cooperating with the Seoul Transportation Corporation to establish the Tagless system and are currently developing an open payment system.

• 8-2. Incheon Airport's AI and Robotics Implementation

• Incheon International Airport's comprehensive improvement project for Terminal 1 has officially begun. For this project, agreements have been made with partners including Samsung SDS, TTA, and Doosan Robotics to innovate airport operations through AI technology and the introduction of collaborative robots. The implementation of AI in airport operations aims to enhance operational processes and promote a digital transformation across passenger services and overall airport management.

• 8-3. CU Box's AI Video Security Solutions

• CU Box has commercialized an AI facial recognition system and has expanded into both domestic and international markets. In collaboration with Samsung SDS, they supplied the 'CU On' video security solution targeted at remote workers, as well as providing services to key public institutions and Samsung SDI. Recently, CU Box has focused on penetrating overseas markets by collaborating in regions such as Vietnam, Singapore, and Japan.

9. Current and Future Trends in AI and Cloud in South Korea

• 9-1. Market Growth of AI and Cloud Services

• In 2022, the AI market size in South Korea was estimated to be approximately $1.83 billion, with a compound annual growth rate (CAGR) of 27.5%, projected to reach $20.7 billion by 2032. Major IT service companies, including Samsung SDS, LG CNS, and SK C&C, saw significant performance improvements in the second quarter of 2024, driven by the adoption of cloud and generative AI technologies.

• 9-2. Samsung and SK Hynix's AI Semiconductor Advances

• Samsung Electronics and SK Hynix reported substantial growth in their AI semiconductor sectors. Samsung's operating profit skyrocketed to 10.44 trillion KRW in Q2 2023, marking a staggering year-on-year increase of 1462%. Meanwhile, SK Hynix transitioned to profit, recording an operating profit of 5.47 trillion KRW, showcasing the rising demand for AI integrated semiconductors.

• 9-3. Competition among Cloud Providers in Public Services

• Competition among cloud service providers for public sector projects is intensifying. Naver Cloud emerged victorious in several governmental support initiatives related to super-large AI technologies, securing contracts for projects with the Ministry of Science and ICT. These include support for AI services for public safety and specific needs for agriculture. The increase in government budget for AI-related initiatives from 8 billion KRW in 2022 to 24 billion KRW in 2023 reflects this growing interest and competitive landscape.

Conclusion

• The growing impact of AI and cloud technologies is evident in the significant economic benefits realized by South Korea's leading IT companies, including Samsung SDS with its pioneering work in GPU clustering and generative AI innovations. Certifications like ISO/IEC 42001 position these companies as leaders in ethical AI practice, ensuring responsible use and governance. However, the challenges associated with multi-cloud strategy costs and ethical concerns around generative AI need urgent addressing to sustain growth and maintain competitive advantage. As these technologies evolve, strategic investment in solutions to these challenges could enhance South Korea's digital landscape, ensuring it capitalizes on future market prospects. Implementing robust AI management systems and aligning with international standards will be crucial for shaping AI policy. Continued government support and increased budgets for public AI projects signal a promising future where these technologies could be integral to South Korea's digital transformation journey.

Glossary

• Samsung SDS [Company]: Samsung SDS is a leading IT service and solutions provider in South Korea, known for its innovations in GPU clustering, generative AI services, and cloud solutions. It plays a crucial role in the country's digital transformation, contributing to significant economic outcomes.

• Naver Cloud [Company]: Naver Cloud is a prominent cloud service provider in South Korea, recognized for its super large AI platform 'HyperCLOVA X'. It has successfully undertaken various public AI projects, demonstrating its technological capabilities and commitment to enhancing public services.

• GPU Clustering [Technology]: GPU clustering involves connecting multiple GPUs to efficiently process parallel tasks, playing a vital role in AI research. This technology has become essential for high-performance computing and advanced data processing in AI applications.

• ISO/IEC 42001 [Certification]: ISO/IEC 42001 is an international standard for AI management systems, assessing organizations' ability to manage risks and ethical considerations in AI product and service development. This certification is crucial for establishing trustworthy AI practices.

• Generative AI [Technology]: Generative AI refers to AI technologies capable of creating new data, which are increasingly utilized across various industries. Addressing regulatory and ethical challenges related to generative AI is becoming a significant focus in the field.

• Multi-Cloud [Strategy]: Multi-cloud strategy involves using multiple cloud services simultaneously to enhance system resilience. While it offers stability, the associated costs present challenges for widespread adoption in South Korea.

Source Documents

• AI와 클라우드의 현황과 미래: 대한민국 주요 IT 기업들의 사례 분석go-public-report-ko-f75f322b-7b0d-41c7-8d1a-bd8380d9dd6a-0-0