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A coolant distribution unit (CDU) showcased by LG Electronics at Data Centre World Asia in October of last year. / LG Electronics

Saudi Arabia's mega futuristic city project Neom is facing the fallout of project downsizing amid domestic and external headwinds. With major residential and tourism infrastructure construction encountering successive setbacks, eyes of concern are also turning toward LG Electronics, which is pursuing the supply of heating, ventilation, and air conditioning (HVAC) solutions within Neom. The company views that its local HVAC business strategy remains viable, given that the development of an advanced industrial complex housing AI data centers is proceeding as scheduled and the rapid growth of the Middle East AI infrastructure market continues.

According to foreign media reports on the 20th, the Saudi government is sharply scaling down the Neom project in the wake of fiscal burdens stemming from stagnant oil prices and soaring construction costs. This is the result of total project costs, initially estimated at around 500 billion dollars (approx. 664 trillion won), ballooning into trillions of dollars, coupled with geopolitical risks including Middle East conflicts. In fact, for the 170-kilometer-long linear city The Line, the section slated for completion was reduced to 2.4 kilometers, and the expected population was downsized from 1.5 million to between 100,000 and 300,000. Mountain tourism destination Trojena has also seen the hosting of the 2029 Asian Winter Games canceled due to construction delays. U.S. business media outlet Semafor reported, "Saudi authorities anticipate spending more on cancellations than on Neom construction over the next five years," adding that they "budgeted 16 billion dollars in contractor payouts for long-term contract terminations."

It is for this reason that talk of growing uncertainty in the Middle East HVAC business is emerging in and around LG Electronics. Previously, LG Electronics discussed plans with the Saudi government in September of last year to supply its HVAC solutions to Neom. The discussions involved providing ultra-large chillers and coolant distribution units to AI data centers built in Oxagon, the advanced industrial complex within Neom. LG Electronics also signed a memorandum of understanding with DataVolt, a local firm overseeing the construction of the AI data centers, to cooperate as strategic partners. At the time, the company stated, "The Middle East and Africa hold tremendous potential powered by government-led transformation and mega-development projects," adding, "Our growth strategy is to establish sustainable, long-term opportunities in high-potential Global South markets, including the Middle East."

LG Electronics maintains that to date there has been no commercial damage from the downsizing of Neom. Unlike construction companies that entered residential and tourism infrastructure projects like The Line or stadiums only to see contracts fall through, the company sidestepped structural risks by exploring business opportunities centered on Oxagon from the outset. In particular, Oxagon is reportedly highly likely to translate into actual equipment orders given that it is a private-capital-centered project alongside surging demand for AI infrastructure. The company also explained that there are no concerns over sunk costs because HVAC supply discussions with the Saudi government were intended to identify future order opportunities rather than taking the form of advance investments.

The rapid growth of the AI infrastructure market across the Middle East, including Saudi Arabia, is another positive factor. The local operators LG Electronics engaged with last year are rolling out AI infrastructure projects across the Middle East. In the case of DataVolt, it is pursuing the development and operation of hyperscale data centers across Saudi Arabia, the United Arab Emirates, Uzbekistan, India, and the U.S. LG Electronics has also secured high bidding competitiveness through its long-standing partnership with Shaker Group, the largest local distributor. An LG Electronics official stated, "The Oxagon project is currently ongoing, and we continue to explore business opportunities related to supplying HVAC solutions," adding, "We are also consistently discussing cooperation with operators running data centers across the Middle East region."

                                                                                                           Yeon Chan-mo