The growing popularity of cloud computing services among public and small and medium enterprises (SME) has induced SK Telecom Co. Ltd. (SKM), one of the leading telecom carriers in South Korea to strike a deal with Juniper Networks (JNPR), which specializes on networking and cloud solutions, to develop a virtualization security solution for both public and SME customers. SK Telecom is the first telecom company in South Korea to launch such a service for both sets of customers. With the deployment of Juniper's vGW Virtual Gateway along with SRX Series Services Gateways, the company will be able to develop a very high level of security for its virtualized data centers across its cloud networks through intrusion detection and prevention applications. Moreover, it will also offer scalability through massive data storage and a continuous and secure network infrastructure.

Earlier in November 2010, SK Telecom started offering cloud service solutions known as T Cloud biz to its SME customers. Later in July 2011, the company made this service available to the non-business class customers mainly aimed at premium 4G-LTE subscribers.

However, deployment of these security solutions, coupled with LTE roll outs requires huge investments.SK Telecom Corp.'s net income for the first quarter of 2012 declined due to higher investments in advanced wireless networks and mobile tariff cuts. We believe that heavy expenditures on promotional events and handset subsidies may continue to drag the company's earnings in the near future. Moreover, intense competition and heavy regulation by the Korean government may also act as headwinds for the company going forward. We, thus, maintain our long-term Underperform recommendation forSK Telecom.

Currently, shares of SK Telecom have a Zacks #4 Rank (short-term Sell).

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Tickers in this Article: JNPR, SKM

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