Image of a server room inside an AI data center. Clipart Korea
LG Electronics’ plan to build a chiller production base in Virginia coincides with the emergence of trillion-won supply contract talks with global technology giants. The move is aimed at pre-emptively establishing a local production network to capture the fast-expanding market for artificial intelligence data center cooling solutions.
LG Electronics (066570) met with Microsoft CEO Satya Nadella last year to discuss AI data center business cooperation based on a “One LG” framework involving group affiliates including LG Electronics, LG Energy Solution (373220) and LG CNS (003550). Industry watchers say the meeting has put LG Electronics on the verge of signing a mega-scale supply contract with Microsoft and other global technology firms.
Financial investment industry sources see a strong possibility that LG Electronics will sign a 2.5 trillion won ($1.8 billion) contract to supply AI data center cooling solutions to a global technology company in October. Given that chiller orders related to AI data centers stood at about 600 billion won in the first half of this year, the contract would amount to a mega-project four times the size of existing orders. An industry official said the company is in talks with major technology firms on supplying data center cooling solutions, adding that the order value could be the largest among contracts signed by the Eco Solution business division.
Big Tech clients in particular have strongly demanded the construction of a local North American production network to ensure stable equipment procurement during contract negotiations, according to sources. For companies pouring hundreds of trillions of won a year into securing leadership in the AI industry, production capacity capable of reliably supplying large-scale cooling equipment matters more than anything else. In response, LG Electronics is pursuing local investment of up to several hundred billion won to build a second chiller production base in Virginia on a scale comparable to its Pyeongtaek plant.
LG Electronics’ Pyeongtaek plant, currently the core base for its global chiller production, was completed in 2017 and has annual capacity of about 1,000 units. But the volume of cooling equipment required by the AI data center market dwarfs existing industrial demand. A single 1-gigawatt AI data center typically requires about 60 large chillers of 5,000 refrigeration tons, or about 100 units on a 3,000-RT basis. A single mega-project alone calls for hundreds of units.
The challenge of managing heat inside data centers has become a critical issue as AI servers equipped with ultra-high-performance semiconductors such as Nvidia graphics processing units and high-bandwidth memory proliferate. That is why high-efficiency cooling solutions are drawing attention as a way to cope with more powerful AI accelerators and rising power consumption per server.
LG Electronics believes securing a production base in Virginia, the largest data center cluster in the United States, will give it an edge not only in tapping the North American market but also in logistics costs and shipping times. Chillers currently produced in Pyeongtaek and exported weigh dozens of tons each, making heavy shipping costs and long delivery times a bottleneck. Beyond lower logistics costs, local production is also expected to ease tariff burdens.
Generous tax benefits and investment incentives offered by U.S. state governments are another positive factor. With U.S. President Donald Trump pressing South Korea for large-scale investment in the United States, analysts say LG Electronics could play a symbolic role in economic diplomacy if it builds a production base exceeding its previous largest local investment, a home appliance plant in Tennessee worth $390 million, or about 538 billion won.
LG Electronics has expressed strong confidence that it can expand its AI data center cooling business through a North American production base. Last month, the company said it aims to more than triple orders for data center heating, ventilation and air conditioning, including cooling solutions, this year from a year earlier, and to lift revenue from large-capacity chillers to 1 trillion won within two years.
Big Tech companies are indeed adding AI infrastructure across Virginia. Microsoft plans to build additional large-scale data centers in Mecklenburg and Clarksville in the state’s south, on top of its existing facilities in northern Virginia. Amazon Web Services and Google also plan to construct data centers, focusing on the south-central part of the state.
A local industry official said new global data center capacity is projected to grow to about 70 gigawatts by 2031 from 25 gigawatts this year, with roughly 60% concentrated in North America, adding that a system for producing chillers locally and supplying them reliably would put a company in a stronger position in the race for North American data center orders.
An Amazon Web Services (AWS) data center in Virginia. Photo for illustrative purposes. Reuters-Yonhap News
Image of a data center