Executive Summary / Key Takeaways

• SK Telecom is undergoing a significant transformation, pivoting from a leading telecommunications provider to a global AI company, driven by its comprehensive AI Pyramid Strategy encompassing AI Data Centers (AIDC), AI B2B (AIX), and AI B2C services.
• Despite a robust 2024 performance, a major cybersecurity incident in Q2 2025 led to a temporary decline in consolidated revenue and operating profit, prompting a revised 2025 revenue guidance to KRW 17 trillion and an expected underperformance in operating profit compared to the prior year.
• The company is making substantial investments in AI infrastructure, including a KRW 700 billion "Information Protection Innovation Plan" over five years and a hyperscale AI data center in Ulsan with AWS (AMZN), projected to generate KRW 1 trillion in annual sales from data centers alone by 2030.
• SK Telecom maintains a commitment to stable shareholder returns, with a policy to distribute over 50% of adjusted consolidated net income, even as it balances growth investments and addresses near-term financial impacts.
• The competitive landscape remains intense, but SK Telecom leverages its technological leadership in 5G and emerging AI, coupled with strategic partnerships and ecosystem synergies, to differentiate itself and capture new growth opportunities.

SK Telecom's Strategic Evolution: From Telecom Leader to AI Powerhouse

SK Telecom Co., Ltd. (SKM) stands at a pivotal juncture, evolving from its foundational role as a dominant telecommunications provider in South Korea to an aspiring global AI company. Established in March 1984 as Korea Mobile Telecommunications Co., Ltd., the company has a rich history of innovation, including the world's first commercialization of 5G technology in 2019. This technological leadership in 5G, characterized by ultra-low latency and high capacity, continues to accelerate the introduction of new services and the growth of Internet-of-Things (IoT)-based B2B businesses. Strategic acquisitions, such as Hanaro Telecom (now SK Broadband) in 2008, and the 2021 spin-off of SK Square (402340.KS), were instrumental in refining its focus on core telecommunications and emerging AI initiatives.

The company's overarching strategy is encapsulated in its "AI Pyramid Strategy," which targets AI Data Centers (AIDC), AI B2B (AIX), and AI B2C services as the three primary domains for future profit generation. This strategic pivot is a direct response to broad industry trends, where AI and data center demand continues to outstrip supply, and traditional telecommunications markets, while stable, have reached maturation with over 100% mobile penetration in Korea. The fixed-line sector, too, is experiencing rapid technological evolution, demanding continuous innovation to meet subscriber needs.

Technological Edge and Innovation Roadmap

SK Telecom's competitive advantage is increasingly rooted in its differentiated technology, extending beyond its robust 5G network. The company is actively developing and deploying advanced AI capabilities across its operations.

At the core of its AI infrastructure push are AI Data Centers (AIDC). These centers are designed with ultra-high rack density to support the intense computing power required for AI workloads, incorporating advanced cooling systems and structural designs. This approach is expected to yield higher profitability compared to conventional data centers. The company's R&D efforts in this area include exploring technologies like DSIM (immersion cooling), with a proof of concept underway in Bundang, aiming to significantly reduce power consumption and operational costs. SK Telecom is not merely providing capacity but is focused on building the most affordable and efficient data centers, leveraging synergies within the broader SK Group, such as SK hynix (HXSCL)'s High Bandwidth Memory (HBM) and SK energy (096770.KS)'s low-carbon energy solutions.

In the realm of AI Chips, SK Telecom has tested Rebellion's AI chip ATOM for its AI services, underscoring a strategic intent to foster AI technology independence and build an AI ecosystem based on proprietary solutions. Furthermore, the company is at the forefront of Large Language Model (LLM) development, collaborating with the Global Telco AI Alliance to create a telco-specific LLM, with a commercial launch targeted for the first half of 2025. It has also released A.X 3.1, its Korean-specific LLM, as open-source. These technological advancements are critical for enhancing SK Telecom's competitive moat, enabling new revenue streams, and solidifying its market positioning as an AI leader.

Competitive Landscape and Strategic Positioning

SK Telecom holds a leading position in the South Korean telecommunications market, often considered one of the top players alongside KT Corporation (KT) and LG Uplus Corp. (LGU). While the domestic mobile market is mature, competition is intensifying due to the convergence of fixed-line, wireless, and broadcasting services, driven by digitalization. In the pay TV market, competition for content is also robust, with large over-the-top (OTT) operators vying for market share.

SK Telecom differentiates itself through its unparalleled premium 5G network, extensive subscriber base, and proactive strategic adaptability in emerging technologies like IoT and AI. Its ecosystem integration, bolstered by broader SK Group affiliations, enhances its ability to bundle services and foster customer loyalty, providing a qualitative edge over competitors. For instance, SK Telecom's focus on quantum information and communications services represents a unique value proposition for data security. While competitors like KT possess strong infrastructure and LGU demonstrates agility in consumer-facing innovations, SK Telecom's diversified portfolio and commitment to AI-driven solutions position it to lead in high-growth digital segments. The abolition of the handset subsidy law in July 2025 could intensify promotional activities, but SK Telecom plans to leverage sophisticated and personalized marketing to offer substantial customer benefits.

Financial Performance and Operational Resilience

SK Telecom delivered a strong financial performance in 2024, with consolidated revenue reaching KRW 17.94 trillion, a 1.9% year-over-year (YoY) increase. Operating income grew 4% YoY to KRW 1.82 trillion, with the operating profit margin exceeding 10%, primarily due to operational improvements and cost efficiency measures, including the strategic utilization of AI. Net income saw a significant 25.6% YoY increase to KRW 1.44 trillion, driven by business portfolio restructuring and enhanced asset efficiency. This momentum continued into Q1 2025, with operating income rising 13.8% YoY to KRW 567.4 billion, reflecting improved profitability from declining marketing and depreciation costs as the 5G market matured.

However, the second quarter of 2025 presented significant challenges. A major cybersecurity incident on April 19, 2025, led to a temporary decline in consolidated revenue, which fell 1.9% YoY to KRW 4.34 trillion. Operating income plummeted 37.1% YoY to KRW 338.3 billion, largely due to approximately KRW 250 billion in one-off costs. These costs included the theoretical maximum for USIM replacement (based on a conservative assumption that all customers might request replacements) and compensation for authorized dealers. Consequently, net income for Q2 2025 decreased by 76.2% YoY to KRW 83.2 billion. The incident also resulted in a net loss of approximately 750,000 MNO handset subscribers from the end of March to the end of June 2025, with 5G subscribers declining by 220,000 quarter-on-quarter to 17.02 million, representing 77% of the total subscriber base.

Despite these headwinds, the company's AI-related businesses demonstrated resilience. AI business revenue grew 13.9% YoY in Q2 2025, partially offsetting the decline in telecom revenue. AIDC revenue increased 13.3% YoY to KRW 108.7 billion, driven by higher data center utilization rates. AIX revenue also grew 15.3% YoY to KRW 46.8 billion, supported by increased B2B solution sales. The fixed-line business, primarily SK Broadband, reported KRW 2.23 trillion in revenue for the six months ended June 30, 2025, a 2.30% increase from the prior year, mainly due to growth in high-speed internet and new data centers.

SK Telecom maintains a disciplined capital allocation strategy, balancing shareholder returns, growth investments, and financial structure enhancement. Its debt-equity ratio stood at 144.79% as of June 30, 2025, with the company consistently compliant with debt covenants.

Outlook and Strategic Initiatives

The cybersecurity incident has necessitated a revision of SK Telecom's 2025 financial outlook. The annual revenue guidance has been lowered from KRW 17.8 trillion to KRW 17 trillion, with operating profit expected to underperform compared to the prior year. This revised guidance incorporates the financial impact of the "Accountability and Commitment Program," including 50% tariff discounts scheduled for Q3 and Q4 2025, which are anticipated to bear the biggest financial impact.

However, management views this as an opportunity to strengthen business fundamentals and enhance corporate value in the medium to long term. A significant part of this commitment is the "Information Protection Innovation Plan," involving a KRW 700 billion investment over five years to build a world-class information protection system.

The long-term vision, "AI Vision 2030," targets a total revenue of KRW 30 trillion, with AI contributing 35%. Key to this ambition is the expansion of AI Data Centers. SK Telecom, in partnership with AWS and SK Group affiliates, plans to establish a hyperscale AI data center in Ulsan, aiming for operation by 2027 and a combined capacity of over 300 megawatts by 2030 across its data centers. This initiative alone is projected to generate approximately KRW 1 trillion in annual sales from data centers following increased utilization rates. While SK Broadband's CapEx is expected to increase by nearly 10% YoY due to this project, the overall combined CapEx for SK Telecom and SK Broadband is projected to maintain a stable trend.

In the AIX segment, a 30% revenue growth target is set for 2025, driven by AI cloud, AI vision, AICC, and new AT use cases like A. Biz and market intelligence. For AI B2C, the domestic AI agent "A." is building a monetization basis, with cumulative subscribers surpassing 10 million by the end of July 2025, and a subscription-based paid service planned for launch within 2025. Globally, "Aster," the agentic AI service, completed its open beta in the U.S. and is preparing for an official launch in H2 2025.

Regarding shareholder returns, the Q2 2025 dividend per share (DPS) was maintained at KRW 831, and the 2024 annual DPS was KRW 3,540. The company's policy is to allocate over 50% of adjusted consolidated net income for shareholder return, with a commitment to maintaining a stable dividend trend and considering share buybacks when the stock is undervalued.

Risks and Challenges

SK Telecom faces several pertinent risks. The cybersecurity incident in Q2 2025 is a significant near-term challenge, with ongoing investigations and uncertain long-term obligations. The financial impact, including one-off costs and tariff discounts, is substantial and will affect 2025 earnings. Regulatory scrutiny is also a continuous factor, as evidenced by KFTC fines for advertising practices and collusion, and administrative guidance from MSIT and KCC regarding the cybersecurity incident response.

The maturation of the Korean mobile market and intense competition from KT and LG Uplus necessitate continuous innovation and differentiated service offerings. While the abolition of the handset subsidy law could offer promotional flexibility, it also carries the risk of increased market volatility and expenses. Furthermore, the company acknowledges the potential for significant economic, industrial, and political changes globally and domestically in 2025, which could impact its operations and financial performance.

Conclusion

SK Telecom is at a critical juncture, balancing its established position as a telecommunications leader with an ambitious transformation into a global AI company. The recent cybersecurity incident presents a formidable, albeit temporary, headwind, impacting near-term financial performance and necessitating significant investments in information protection and customer trust initiatives. However, the company's strategic commitment to its AI Pyramid Strategy, underpinned by substantial investments in AI data centers, AI B2B solutions, and AI B2C services, positions it for long-term growth.

The vision of generating KRW 1 trillion in annual sales from data centers alone by 2030, coupled with aggressive growth targets for its AIX business and the planned monetization of its A. AI agent, underscores a compelling investment thesis. Despite intense competition and regulatory pressures, SK Telecom's technological leadership in 5G and emerging AI, combined with its robust capital allocation strategy and commitment to stable shareholder returns, suggests a resilient path forward. The company's ability to execute its AI roadmap and effectively restore customer trust will be paramount in realizing its ambitious "AI Vision 2030" and enhancing shareholder value.