SGH Announces $200 Million Strategic Investment from SK Telecom to Advance End-to-End AI Infrastructure Solutions

Rhea-AI Summary

SMART Global Holdings (SGH) has announced a $200 million preferred equity investment from SK Telecom (SKT), an affiliate of SK Group. The investment aims to enhance SGH's capabilities in AI infrastructure solutions, particularly through its Penguin Solutions brand. Key points include:

1. SGH plans to use the capital to expand its end-to-end AI factory offerings.
2. SKT and SGH will collaborate on developing global AI factory and data center solutions, advanced memory products, and NPU-based AI edge servers.
3. Penguin Solutions currently manages over 75,000 GPUs, positioning it as a leader in AI infrastructure.
4. The investment terms include 200,000 preferred shares convertible to SGH ordinary shares at $32.81 per share, with a 6% annual dividend.

The deal is expected to close by the end of 2024, subject to customary closing conditions.

Positive

• SGH receives $200 million strategic investment from SK Telecom
• Collaboration to enhance AI infrastructure solutions and data center offerings
• Penguin Solutions manages over 75,000 GPUs, indicating strong market position
• 6% annual dividend on preferred shares, payable in-kind or cash
• Investment expected to provide financial flexibility for SGH's expansion

Negative

• Potential dilution of existing shareholders upon conversion of preferred shares
• 6% annual dividend may impact cash flow if paid in cash

Insights

Financial Analyst

SMART Global Holdings, Inc. (SGH) receiving a $200 million strategic investment from SK Telecom (SKT) is a significant development. This investment through preferred equity can enhance SGH's financial flexibility, which is vital for a company in the competitive space of high-performance, high-availability enterprise solutions. Preferred equity generally indicates confidence in the company's future, as it offers both equity upside and downside protection through fixed dividends.

The terms indicate a 6% annual dividend, which is attractive in the current financial environment. Additionally, the conversion price of $32.81 per share, based on a 30% premium to the volume-weighted average closing price, signals SKT's belief in SGH's future growth prospects. Importantly, the provision for SGH to redeem these shares provides flexibility in managing future cash flows.

For retail investors, this investment is a positive signal suggesting institutional confidence and potential for growth. However, it is important to monitor how effectively SGH utilizes this capital to expand its AI infrastructure solutions and enhance shareholder value.

Tech Expert

SGH's focus on enhancing its AI infrastructure through the strategic investment from SKT aligns with the industry's increasing demand for high-performance computing and data center solutions. SGH's Penguin Solutions, with their advanced technologies like fluid-based immersion cooling and 'zero fail' memory solutions, are well-positioned to leverage this investment to scale their operations and innovation.

The mention of leveraging over 75,000 GPUs under management highlights SGH's substantial capability in handling large-scale AI workloads. This scale is important for competing in the global AI data center market. Furthermore, the strategic collaboration with SKT, which has existing AI investments, could lead to synergies that enhance both companies' technological capabilities and market reach.

For retail investors, this signals a solid technological backbone and potential for new, innovative product offerings that could drive future revenue growth. However, it's essential to keep an eye on how these technologies are integrated and commercialized effectively.

Market Research Analyst

The strategic investment from SK Telecom into SGH emphasizes the growing importance of AI infrastructure solutions in the market. SKT’s involvement brings not just capital but also strategic alignment with SGH's goals. The collaboration aims to enhance global AI factory and data center solutions, which indicates a focus on scalability and market penetration.

From a market perspective, this partnership could provide a competitive edge by combining SKT’s advanced technology portfolio with SGH’s established AI infrastructure capabilities. This could lead to differentiated offerings that meet the evolving needs of enterprise customers globally. This collaboration might also open new revenue streams and customer bases, enhancing SGH's market position.

For retail investors, the strategic investment suggests potential market expansion and increased competitiveness for SGH. However, it's important to watch how these strategic goals translate into tangible market share gains and revenue growth over the long-term.

NEW YORK--(BUSINESS WIRE)-- SMART Global Holdings, Inc. (“SGH”) (NASDAQ: SGH), a leading designer and developer of high-performance, high-availability enterprise solutions, today announced that SK Telecom (“SKT”) (NYSE: SKM), an affiliate of SK Group, is making a $200 million preferred equity investment in SGH. SGH plans to use the capital from SKT’s investment to enhance SGH’s capabilities and add to the Company’s financial flexibility as SGH further expands the scope and scale of its Penguin Solutions branded end-to-end AI factory offerings.

(L to R) Ryu Young-sang, CEO of SKT, and Mark Adams, CEO of SGH, announce that SK Telecom, an affiliate of SK Group, is making a $200 million preferred equity investment in SGH (SMART Global Holdings) to enhance SGH’s capabilities in AI and to innovate and execute on strategic collaborative opportunities. (Photo: Business Wire)

SKT and SGH also intend to leverage their complementary capabilities to enhance customer offerings in the development of differentiated global end-to-end AI factory and data center solutions and services, advanced memory market products and services, and NPU-based AI edge servers.

“We are thrilled to have SKT as a strategic investor,” said Mark Adams, CEO of SGH. “Today’s announcement is a testament to Penguin Solutions’ capabilities in the deployment of AI factories at scale through our systems, software, and managed services suite of solutions. We look forward to executing on strategic collaboration opportunities with the SKT team and believe they will create value for our respective stakeholders.”

Ryu Young-sang, CEO of SKT added, “SGH and Penguin Solutions have a proven methodology to deploy their AI infrastructure solutions at some of the most innovative and demanding large-scale enterprise customers in the world. We believe that this collaboration leveraging SKT's vast technology portfolio with Penguin's AI data center solutions would enhance the reach and capabilities of both companies and position them to continue innovating in their fields.”

Penguin Solutions has demonstrated its premier technology position through the development and deployment of innovative AI-driven technologies, such as high-performance and high-availability systems design, fluid-based immersion cooling, “zero fail” memory solutions, end-to-end managed services offerings, and its AI cluster management software suite. Penguin Solutions presently has over 75,000 GPUs under management, among the most in the world.

SKT’s current AI-related investments and partnerships include Anthropic, Lambda, and Perplexity. Along with these investments, a partnership and investment with SGH will advance SKT’s goals in the AI value chain across these three pillars: AI semiconductor, AI infrastructure and AI services.

Terms of the Preferred Equity Investment

SKT will invest $200 million in SGH by acquiring 200,000 preferred shares. The 200,000 preferred shares are convertible into ordinary shares of SGH at a conversion price of $32.81 per preferred share, subject to adjustment upon the occurrence of certain events. The initial conversion rate is based on a 30% premium to the volume-weighted average closing price of SGH ordinary shares over the 15-day period ending on July 12, 2024. The preferred shares are entitled to a 6% annual dividend, payable in-kind or in cash, at SGH’s option. SGH also has certain redemption rights with respect to the preferred shares.

Consummation of this investment is subject to satisfaction of customary closing conditions. SGH currently expects the investment to close by the end of 2024.

Additional information regarding the investment may be found in the Current Report on Form 8-K filed by SGH today.

Advisors

Centerview Partners is acting as exclusive financial advisor to SGH. Latham & Watkins is acting as legal advisor to SGH. Baker McKenzie is acting as legal advisor to SKT.

About SKT

SKT has been leading the growth of the mobile industry since 1984. Now, it is taking customer experience to new heights by extending beyond connectivity. By placing AI at the core of its business, SKT is rapidly transforming into an AI company with a strong global presence. It is focusing on driving innovations in areas of AI Infrastructure, AI Transformation (AIX) and AI Service to deliver greater value for industry, society, and life.

About SGH

At SGH, we design, build, deploy and manage high-performance, high-availability enterprise solutions that help our customers solve for the future. Across our computing, memory, and LED lines of business, we focus on serving our customers by providing deep technical knowledge and expertise, custom design engineering, build-to-order flexibility and a commitment to best-in-class quality.

Use of Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. These statements include, but are not limited to, statements concerning the anticipated partnership and collaboration between SGH and SKT and the expected benefits of such partnership and collaboration, SGH’s and SKT’s ability to create value for their respective stakeholders, SGH’s anticipated use of proceeds from the SKT investment, and the expected timing for closing of the SKT investment. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “believe,” “could,” “will,” “may” and other words of similar meaning. These forward-looking statements are based on current expectations and preliminary assumptions that are subject to factors and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside SGH’s control, including, among others, failure to realize opportunities relating to SGH’s growth and stakeholder value, and the satisfaction of closing conditions related to the investment and certain required regulatory approvals, including CFIUS, and other factors and risks detailed in SGH’s filings with the U.S. Securities and Exchange Commission (which include SGH’s most recent Annual Report on Form 10-K), including SGH’s future filings. Such factors and risks as outlined above and in such filings do not constitute all factors and risks that could cause actual results of SGH to be materially different from SGH’s forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements are made as of the date of this press release, and SGH does not intend, and has no obligation, to update or revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this press release, except as required by law.

Penguin Solutions is a trademark or registered trademark of Penguin Computing, Inc. All other trademarks are the property of their respective owners.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240715061470/en/

Investor Contact

Suzanne Schmidt

Investor Relations

+1-510-360-8596

ir@sghcorp.com

PR Contact

Maureen O’Leary

Director, Communications

+1-602-330-6846

pr@sghcorp.com

Source: SMART Global Holdings, Inc.

FAQ

What is the value of SK Telecom's investment in SMART Global Holdings (SGH)?

SK Telecom is making a $200 million preferred equity investment in SMART Global Holdings (SGH).

How many GPUs does Penguin Solutions, a part of SGH, currently manage?

Penguin Solutions, a part of SGH, currently manages over 75,000 GPUs, which is among the most in the world.

What is the conversion price for SK Telecom's preferred shares in SGH?

The preferred shares are convertible into ordinary shares of SGH at a conversion price of $32.81 per preferred share, subject to adjustment.

When is the SK Telecom investment in SGH expected to close?

SGH expects the $200 million investment from SK Telecom to close by the end of 2024, subject to customary closing conditions.

What dividend rate do the preferred shares in SGH offer?

The preferred shares are entitled to a 6% annual dividend, payable in-kind or in cash, at SGH's option.