Power transformer sales explode on AI boom: HD Hyundai Electric CEO

Cho Seok, chief executive of HD Hyundai Electric Co., is an outsider at Korea Inc.

When he was named CEO of the power equipment maker in December 2019, the veteran bureaucrat was the first C-suite executive HD Hyundai Group hired from outside the conglomerate in five decades.

The reasons were clear. In 2013, Cho, former vice trade, industry and energy minister, assumed the top job at another company, Korea Hydro & Nuclear Power Co. (KHNP), and turned the money-losing firm into a profit maker within two years.

Under his leadership, KHNP posted a profit of 2.47 trillion won ($1.8 billion) in 2015, a dramatic turnaround from a loss of 188.3 billion won in 2013.

His “Midas touch” has not been lost on HD Hyundai Electric, the electrical and electronic equipment-making unit of the world’s largest shipbuilding group holding firm HD Hyundai Co.

HD Hyundai Electric posted an annual operating loss of 100 billion won in 2018 and a similar loss again in 2019. The following year, however, the company turned around, posting 72.7 billion won in operating profit.

It expects some 400 billion won in operating profit this year, up 27% from 315.2 billion won in 2023, company officials said.

“Orders for our mainstay product, power transformers, are flooding in. We have already received orders for them to be supplied by 2028,” the CEO said in a recent interview with The Korea Economic Daily. “We’re considering building a new manufacturing plant as well as expanding existing facilities.”

POWER TRANSFORMERS: ‘GOLD’ IN THE AI ERA

Power equipment accounts for 60% of HD Hyundai Electric’s sales revenue and demand for its products keeps growing with the recent artificial intelligence boom.

At a tech conference last month, Tesla CEO Elon Musk said: "I've never seen any technology advance faster than this. The chip shortage may be behind us, but AI and EVs are expanding at such a rapacious rate that the world will face supply crunches in electricity and transformers next year.”

A power transformer is a device that increases or lowers the voltage of electricity generated at a power plant before it is transmitted to homes and factories.

Cho said power transformer demand is particularly strong in the US.

“Due to the rapidly increasing AI demand, data centers are being built in the US almost every day, and new semiconductor and electric vehicle factories are being built one after another,” he said.

To meet the growing demand for power transformers, HD Hyundai Electric’s plants in Ulsan, Korea and Alabama, US are running at full capacity, he said.

The company’s power equipment orders in the US reached $1.78 billion in 2023, a fourfold increase from $390 million in 2021.

With the rise in demand for power transformers, retail prices doubled from five years ago, company officials said.

“There is already a shortage of transformers due to the AI boom. There’s also a growing demand for replacing old power grids installed some 20 to 30 years ago. Some types of transformers, you can’t get them even if you order them now,” he said.

DEMAND FROM THE MIDDLE EAST

Demand from the Middle East is also growing, particularly from Saudi Arabia where the multi-billion-dollar Neom smart city construction project is underway, he said.

Last September, the company won a 67.8 billion won deal to supply substation equipment for the Neom City project.

Neom, under development in a desert area in the kingdom’s northern Tabuk Province, is a smart city to be fully run on renewable energy such as solar power and green hydrogen, as well as cutting-edge technologies, such as 5G networks, the Internet of Things, cloud computing and robotics.

Cho said he is unconcerned about Chinese companies’ strategy to drastically cut prices to win orders.

“In the power equipment market, only trustworthy companies can survive,” he said.

HD Hyundai Electric is also ramping up marketing efforts in Europe.

“We are increasing the supply of our power equipment to eco-friendly power generation facilities in the UK and Denmark,” the CEO said.

Power distribution equipment is another key product of the company. Cho said the company is currently building a smart factory for low- and medium-voltage circuit breakers in Cheongju, North Chungcheong Province.

Shares of HD Hyundai Electric finished up 1.3% at 235,000 won on Friday, outperforming the broader benchmark Kospi index’s 0.9% fall.

Write to Woo-Sub Kim and Hyung-Kyu Kim at duter@hankyung.com


In-Soo Nam edited this article.