LG's AI cooling orders are growing while Eco Solution margins slip

LG's Eco Solution margin was 8.7 percent in the second quarter of 2026, down from 9.5 percent a year earlier. LG says third quarter profitability declined slightly, so cooling orders have not lifted margins yet.

LG Electronics says cooling limits how much artificial intelligence a data center can run. Its chief executive, Jae-cheol Lyu, argues that power saved on cooling can feed GPUs, the chips that run AI. LG's own numbers show where that idea has yet to reach the income statement.

The argument applies to any site capped by its grid connection, and LG is spending to supply it. The order book is ahead of earnings. LG's cooling orders sit inside a division whose second quarter margin is below a year ago.

The 30 percent energy saving LG advertises comes from one simulation of one unit.

The case is made in a Forbes Technology Council post published on 19 October. It says power usage effectiveness has limits across different climates. That measure is the ratio of total site power to computing power.

The post argues that competitiveness will turn on "how much computing performance can be sustainably delivered within the constraints of limited power, water and space," with cooling "central." Where power is limited, the post says, cooling "can free up electricity for GPUs and AI computation."

The demand side it cites is steep. Uptime Institute data put operators running racks of 30 kilowatts or more at 24 percent in 2026, up from 19 percent. The International Energy Agency sees data center electricity use more than doubling to roughly 945 terawatt hours by 2030.

The mechanism is simple arithmetic. Take a campus with a fixed 100 megawatt grid connection and a power usage effectiveness of 1.30. Dividing 100 by 1.30 gives 76.9 megawatts of computing load.

Now assume cooling takes 0.20 of that load and other overhead takes 0.10. A better cooling system cuts cooling power by 30 percent, so the ratio falls to 1.24. The same connection then supports 80.6 megawatts of computing.

That is an extra 3.7 megawatts of GPUs, or 4.8 percent more. The gain matters at a site that cannot get more power. It is modest at a site that can.

LG is selling into that gap with new supply deals. Its 5 October release announced a long term chiller supply agreement with AIR Control Concepts. A chiller is the machine that cools the water used to remove heat from the building. The agreement supports data center projects exceeding 5 gigawatts in North America. The release also cited first half orders for data center cooling above USD 428 million.

LG is also building capacity. Its 1 October release described a new air cooled chiller plant in Windsor, Virginia, with production due in the first half of 2027. Total investment is KRW 150 billion across that plant and expansions in Pyeongtaek and Changwon.

The market is large, but LG's visible share is small. LG cites Omdia for 194 gigawatts of added global capacity to 2030, with 60 percent in North America. That is about 116 gigawatts. The AIR projects represent about 4 percent of that capacity.

The headline saving rests on a single case. LG's footnote says the 30 percent figure is "based on LG's internal simulation of a single 1,750 kilowatts unit operating at 100 percent cooling capacity under climate conditions in the Seoul metropolitan area."

The comparison is between two ways of cooling without running compressors much, called free cooling. The 29.4 percent saving is against one rival configuration, not against the installed base of data centers.

The result also depends on local weather. The simulated unit would draw only 6.8 percent of its full load energy over a year, so outside air does most of the work. The saving shrinks at a site with fewer cold hours.

Financial News in Seoul separately relays an LG claim of up to 40 percent from its Data Center Cooling Manager software. That claim again comes from LG's own tests.

The earnings trail is where the story stalls. LG's Eco Solution division carries heating, ventilation and air conditioning, known as HVAC. It is highly seasonal, so only the same quarter in different years compares fairly. It also covers residential and commercial air conditioning as well as data center cooling.

Margin here means operating profit as a share of sales. In the second quarter of 2025 the division earned 250.5 billion won on 2,644.2 billion won of sales. That is a 9.5 percent margin.

In the second quarter of 2026 it earned 235.8 billion won on 2,720 billion, or 8.7 percent, according to LG's earnings materials. Profit per won of sales therefore fell.

Sales rose 3 percent while operating profit fell 6 percent. The 0.8 point margin loss is all the second quarter shows. Orders reached 600 billion won only in the first half of 2026. LG describes production as underway, so most of that is not revenue yet.

The chief financial officer told analysts that cooling orders exceeded 600 billion won in the first half. That equals about 11 percent of the 5.5 trillion won of division sales in the same two quarters. LG is targeting several trillion won by year end.

That target is steep. Even 2 trillion would need second half orders 2.3 times the first half total. The order book would have to accelerate sharply.

LG's preliminary third quarter release of 7 October said HVAC revenue was broadly in line with a year earlier. It said profitability "declined slightly" as LG expanded manufacturing and resources for new businesses.

The division head named three reasons for the second quarter squeeze. They were higher logistics costs from the conflict in the Middle East, increased competitive spending and higher personnel expenses for new growth initiatives. Chiller supply is still being built, with the Windsor plant due in the first half of 2027 and the Korean lines expanding alongside it.

LG reports full third quarter division results on a 28 October call at 4 pm Seoul time. The 7 October release already said HVAC profitability declined slightly. A margin just under last year's 6.1 percent is the likely print, so the margin will not settle the case.

The test is orders. Two trillion won by December needs about 700 billion won in each of the last two quarters, more than the whole first half. If the 28 October materials show nine month orders of roughly 1.3 trillion won or more, the pace holds. A figure near 600 billion would mean the third quarter added little.