Alibaba scraps plans to spin-off its cloud business, citing US chip restrictions
The US chip export ban appears to have dealt a blow to some Chinese tech companies, forcing them to reassess their strategies and adapt to the new realities. The latest victim of this ban is Chinese tech giant Alibaba Group.
Today, Alibaba announced it has abandoned plans to spin off its cloud business, citing uncertainties arising from U.S. export restrictions on chips used in artificial intelligence applications. The news comes just two months after Alibaba’s cloud division announced it was in talks to raise up to $3 billion from state-backed telecommunications firms.
In addition, the company has put on hold the initial public offering of its Freshippo groceries business. However, it expressed intentions to prepare for external fundraising for its international digital commerce group arm, Reuters reported.
“The market does not like surprises,” Thomas Hayes, chairman at hedge fund Great Hill Capital said on the X social media platform.”Investors had hoped to receive separate shares of the cloud business in hopes the segment could achieve a higher multiple in the public markets due to its growth potential.”
This announcement also coincided with Alibaba’s second-quarter revenue, which was in line with expectations. The Chinese e-commerce group had earlier unveiled plans in March to separate its cloud business, marking the most significant restructuring in its 24-year history.
As we reported back in March, Alibaba Cloud underwent a significant restructuring, dividing itself into six major units. This move came as China aimed to alleviate the impact of stringent regulatory measures and support its private enterprises. As part of this transformation, Alibaba also launched Tongyi Qianwen, a text generator similar to OpenAI’s ChatGPT.
Analysts had estimated the cloud division’s value between $41-60 billion in March, but concerns were raised about potential scrutiny from Chinese and overseas regulators due to the significant data it manages. Alibaba’s former group CEO, Daniel Zhang, unexpectedly resigned in September, focusing on cloud computing. Eddie Wu, a co-founder and long-time associate of former chief Jack Ma, was appointed as the CEO of both Alibaba and the cloud business.
Alibaba cited the recent expansion of U.S. restrictions on the export of advanced computing chips as a factor creating uncertainties for the Cloud Intelligence Group.
Regulatory filings also revealed that Jack Ma’s family trust plans to sell 10 million American Depository Shares of Alibaba Group Holdings for about $871 million.
Meanwhile, in the second quarter, Alibaba reported a revenue of 224.79 billion yuan ($31.01 billion), aligning with analysts’ expectations. China’s economic recovery has shown disparities, with the industrial and retail sectors outperforming expectations, while the troubled property sector has impacted consumer confidence. Customer management revenue from Alibaba’s commerce retail, measuring merchants’ contributions for placements and promotions, grew 3% year-on-year.
Alibaba was founded in April 1999 by Jack Ma. The former English teacher stepped down on his 55th birthday after amassing a $41.8 billion fortune — a trove surpassed in Asia only by India’s Mukesh Ambani, according to the Bloomberg Billionaires Index. The resilient Ma overcame many obstacles and challenges to become one of China’s richest men after he received more than a dozen rejections — including from KFC — before being hired as an English teacher. Ma applied ten times to Harvard Business School (HBS) and was rejected.