South Korea's Krafton and Hanwha to co-develop physical AI for defense and manufacturing

Krafton, the South Korean game developer behind PUBG, announced an agreement with Hanwha Aerospace to jointly develop “physical AI” for defense and manufacturing, with plans to establish a joint venture to commercialize the technology. The memorandum of understanding was disclosed on the 13th.

Physical AI refers to artificial intelligence that operates in real-world, physical environments, such as robots and drones. As AI moves beyond software and into autonomous and robotic systems, it is drawing increasing attention as a next-generation industrial capability.

Under the collaboration, Krafton would contribute its AI R&D and software development strengths, while Hanwha Aerospace would bring its defense and manufacturing infrastructure. The aim is to fuse Krafton’s data operations and simulation expertise with Hanwha’s field capabilities to develop and validate physical AI technologies in real-world contexts.

The partnership plans a staged approach: joint research and development on core physical AI technologies, evaluation of demonstration scenarios and applications, and the establishment of an integrated technical and operational framework. A joint venture would then help deploy and commercialize the results in industrial settings, extending the collaboration beyond pilots to ongoing operations.

Krafton will also join Hanwha Asset Management’s AI, robotics, and defense-focused investment fund, which targets up to $1 billion in capital. The fund seeks to back promising technologies and companies to expand the physical AI ecosystem and strengthen core capabilities through investments and strategic partnerships across the value chain.

Krafton chief executive Kim Chang-han said the partnership would accelerate the development of AI that works in real environments by combining Krafton’s software and AI strengths with Hanwha’s on-the-ground capabilities, with the goal of building a joint venture that can commercialize results and grow into a global defense technology company along the lines of Anduril. Hanwha Aerospace chief executive Son Jae-il noted that AI is rapidly expanding from industry into defense as physical AI, and said the collaboration would help establish a new technology paradigm in future defense.

Krafton has been expanding its AI footprint beyond gaming. The company founded Ludo Robotics in the United States last year to pursue robotics research, and established a Korea-based subsidiary this February, led by CAIO Lee Kang-wook. Krafton says the Korea unit will anchor its physical AI strategy, while Ludo Robotics provides a separate footing for robotics research and development.

For U.S. readers, the deal matters because it reflects growing cross-border collaboration in defense-relevant AI and robotics between a major Korean conglomerate and a prominent game-tech company. It signals potential shifts in global supply chains, defense innovation, and international partnerships on dual-use technologies that could affect how next-generation weapons, autonomous systems, and industrial automation are developed and deployed.