SMART Global Holdings (SGH), known for designing, building, and managing AI infrastructure systems, announced it secured a $200 million investment from SK Telecom (SKM) and that it will be changing its name to Penguin Solutions, its biggest brand.
SMART Global Holdings CEO Mark Adams joins Market Domination Overtime to discuss the new $200 million investment in the company, its involvement in the AI sector, and more.
Adams explains the company’s competitive edge against bigger names in the space like Hewlett Packard Enterprise (HPE): “The competitive advantage is what I’m referring to is that that kind of software service layer, when the company’s names, you just mentioned are traditionally more hardware focused. And if you look at the margin profile of their business and our business, it’s just different. By the way, and they’re partners of ours. So it’s not bad or good. It’s just our gross margin is substantially higher because we play in more of a service and software part of the solution.”
Adams elaborates on current motivations to invest in AI and an AI infrastructure as companies are still solidifying their proof of concepts:
“I think what’s really encouraging for all the ecosystem players is that in these large language models, the number of parameters that run these models are going like triple, quadruple. And so from that perspective, the amount of compute resources and data center resources are going to be substantial. What’s interesting right now in the data center space is there’s not enough of them with AI power, there’s not enough megawatts. So there’s a constraint right now on data centers that are enabled to drive AI. And so that’s providing a lot of motivation for people to make that investment.”
For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.
This post was written by Nicholas Jacobino
Video Transcript
Smart global holdings which designs builds and manages A I and high performance computing infrastructure.
Announcing it secured a $200 million investment from SK Telecom.
The company also announcing it plans to change the company name to Penguin Solutions, which is its biggest brand.
Joining us now is Mark Adams Sghco.
Mark.
Good to see you.
Thanks having me.
So maybe um start on that news.
Mark this, this um this news that you all make like a $200 million strategic investment from SK Telecom.
How is that news come about what’s gonna mean for your business mark?
Well, I think uh if you look at what we’ve done very well over the last couple of decades as we got to understand the infrastructure environment and high performance computing.
Penguin’s been around for about 25 years.
And if you think it really couldn’t be a better precursor to A I than H BC because you, you start with cooling systems and power processors, memory storage, networking management software.
And those are all things we do very, very well in addition to our professional services that actually deploy these systems.
And so um SK Telecom is part of SK group, which is the second largest conglomerate in Korea, $250 billion market cap.
And they have extensive networking capabilities, processor capabilities, memory with their division SK Heini.
And so they complement what we’re all about.
And when you think about the last mile of integrating this type of technology, make it all work.
Uh It’s a really interesting partnership for us on a global basis because obviously they’re very strong internationally.
So talk to us a little bit more about where you sit.
Then do you, you sit in the last mile?
Then of of what we’re talking about because I know your business is made up of memory in part led lighting solutions also.
And then the biggest uh chunk of your business is what you call intelligent platform solutions.
So for people who are not familiar, tell them what that means and how these different pieces are integrated.
So when you think about um uh implementing A I today, all those technologies I just talked about super complex.
For example, we we last year deployed the world’s first oil based immersion cooling.
What does that mean?
We literally put computers inside of recycled oil inside of a tank for efficiency, use and power and, and actually environmental friendliness.
Um That’s just an example of one technology advanced compute technology with memory interconnecting with high bandwidth opportunities to increase the performance of GP us.
Another good example.
Then we have a layer of software on top of it that manages all the environment knows when predictive stuff is going down as far as uh fault, identification and repair, uh scheduling and provisioning.
And so we have this host of solutions that actually makes the deployment piece pretty seamless for us and that we’re really good at that mark.
I was, I was talking to an analyst who, who knows the company in the industry and I was saying, well, who are their rivals?
And he mentioned names like he said, I put Dell there, I put H pe there.
I mean, those are, those are big names, Mark.
I mean, um how do you compete there?
What are your competitive advantages?
Well, the competitive advantages, what are referring to is that that kind of software service layer?
Uh When you, the company names you just mentioned are traditionally more hardware focused and if you look at the margin profile of their business and our business, it’s just different by the way and they’re partners of ours.
So it’s not bad or good.
It’s just, you know, our gross margin is substantially higher because we play in more of a service and uh software part of the solution.
We do have systems, but we also can sell our products on Dell and HP and other systems.
What is this ja I enthusiasm gonna mean for your business because you guys are also considerably smaller than some of those names that he just mentioned are we gonna start to see growth really ramp up for you guys as well as we’ve got all this demand for gen A. I, I think that’s where we’re at.
Actually.
I think I used to, I’ve said in, in kind of prior earnings calls is that 23 and 24 were kind of the years of GP U sales.
Everyone was like GP U is getting sold off everywhere.
Well, now they have to deploy them and there’s so little deployment yet really in at corporate enterprise today, the hyperscale is sure.
And, and we’ve got one of those is our biggest customer.
But if you look at traditional fortune 500 enterprises, they’re all kind of doing proof of concept, but they’re not quite sure what A I is going to do.
Now, we’re in that deployment phase and that’s gonna benefit us.
Uh We feel really in a good way.
What, what percentage of your business mark would you say now?
Is, is A I related?
Oh If you factor in where we’re going with memory, it’s kind of two thirds or above and it’s gonna grow more and more that way.
And, and what was it?
You know, versus y when I started uh when I took over the CEO job back in uh August of 20 it was 78% 77% memory and very little compute.
And um you know, as those companies start to figure out what proof of concept is what’s your feeling in terms of the broader economic environment and spending environment on the part of potential clients?
What’s their appetite for spending right now?
Well, I think um well, the appetite is amazing just because the, you know, boards are saying, hey, what is your, what is your A I strategy?
Right?
And so companies are um are trying to define this on the flag as the game’s happening.
I think what’s really encouraging for all the the ecosystem players is that in these large language models, number of parameters that run these models are gonna like triple quadruple and, and, and so from that perspective, the amount of compute resources and data center resources are going to be substantial.
What’s interesting right now in the data center spaces, there’s not enough of them with A I power, there’s not enough megawatts.
So there’s, there’s a constraint right now on, on data centers that are enabled to drive A I.
And so that’s providing a lot of uh motivation for people to make that investment.
So I think it’s pretty favorable from an investment standpoint on the infrastructure piece.
What about Martin?
Just think about customers, about crypto miners just given all the hardware they buy.
Is that a natural customer for you all?
It’s funny to say that the answer is absolutely yes, because we have looked at that space for a long time and given the supply challenges around what I just said in terms of data centers, these people have immense amount of power and the crypto business is pretty volatile.
So if you look at some of the bigger A I uh sorry crypto companies that are public companies, they’ve all announced an A I strategy and yet they don’t necessarily have the experience of 25 years of doing this type of infrastructure.
They’re great customers.
We announced one today at our analyst day.
It was our first ever software and services non hardware deal with a company called Voltage Park, which is a tier two cloud service provider.
We’re installing 24,000 something that 24,000 gps in four data centers with them massive deployment and they’re converting, uh they’re converting their business from a prior model.
That’s true with other other crypto players.
That’s really interesting point you make.
Um there was a note out from uh economists and researchers at Goldman Sachs earlier this week that said maybe A I isn’t gonna be gen A I isn’t gonna be as big as we’re thinking it is because the, you know, if you look at it’s to your point, it being deployed in enterprises, it’s, it’s hardly a blip at this point and maybe it’s not gonna get there.
They’re not gonna figure out what the use cases are.
It doesn’t sound like though you’re seeing that necessarily in your business.
Are you still confident that that trajectory is still gonna happen as predicted?
Well, I mean, there’s 22 pieces of that question, the way I interpret the, the capital markets, there’s just been some irrational valuation is going on and we’re an operating company, we make money, we strong, strengthen our balance sheet, what have you.
And so we’re a little more boring that way.
Um But uh I think both the answers could be true.
I think there’s a lot of growth from here because people are now are starting to think about how to deploy it.
Now, the question is the upside of how much the growth that is, that’s a hard one to call.
I, I just think where, where people are struggling in the enterprise right now is OK.
I get what the technology can do.
What’s it mean to me like the classic case study right now is ad revenue.
So when we do these searches and people track us the next day, these ads show up and they’re the same ads we’re looking at yesterday.
Ok.
So, but if you’re in health care, if you’re in some other business, what’s the, what’s the kind of commercial value you’re driving from an A I strategy?
And I think that’s the stage we’re in is OK. We understand the technology, how does it commercially become viable to give us an advantage in our business and that’s what we’re seeing our customers uh to spend a lot of time on.
Yeah, try to figure out.
All right, Mark.
Thank you.
So, much for coming in.
Really good to talk to, you.
Appreciate it.