Alibaba abandons plans to spin-off cloud business due to US chip export ban

Chinese e-commerce and tech giant Alibaba has scrapped previously announced plans to spin its cloud unit off into its own standalone business.

The company, which in March revealed plans to split into six business groups as part of the company’s largest restructuring in its 24-year history, said on Thursday that the cloud unit will remain part of the core group as a direct result of US bans on chip exports to China.

The US last month moved to ban the export of processors used in artificial intelligence (AI) tech development to China.

The move serves as a major blow to Alibaba, with analysts previously estimating that the Cloud Intelligence Group could be worth between $41-60 billion. In preparation for this restructure, Alibaba in April announced aggressive price cuts for products and services from its cloud computing division of up to 50 per cent.

However, tensions between the US and China over AI development and chip production have escalated in the months leading to Washington’s eventual ban.

Alibaba faced uncertainty in September when former group chief executive officer Daniel Zhang quit just two months after publicly revealing plans to focus on cloud computing. The company subsequently appointed group co-founder Eddie Wu as chief exec of both Alibaba and the cloud business, while Joseph Tsai, another co-founder, became chairman.

Confirming the news on a post-earnings call with analysts, Tsai said: "Alibaba will not pursue a full spin-off of Cloud Intelligence Group in light of uncertainties created by recent US export restrictions on advanced computing chips.”

Tsai said that the cloud unit would remain independently operated within the existing Alibaba structure, while the group will provide investment for its AI development.

The announced u-turn saw Alibaba's shares drop by 10 per cent on Friday in what is likely the company’s biggest single day fall in a year. About $20 billion was wiped off the company’s market value.

The company in October 2020 was Asia’s most valuable stock with a market cap of around $830 billion. However in the years since, economic pressures along with a clampdown on tech firms from Beijing has seen Alibaba’s value slump to around a quarter of that total.

Share Story:

Recent Stories

Bringing Teams to the table – Adding value by integrating Microsoft Teams with business applications
A decade ago, the idea of digital collaboration started and ended with sending documents over email. Some organisations would have portals for sharing content or simplistic IM apps, but the ways that we communicated online were still largely primitive.

Automating CX: How are businesses using AI to meet customer expectations?
Virtual agents are set to supplant the traditional chatbot and their use cases are evolving at pace, with many organisations deploying new AI technologies to meet rising customer demand for self-service and real-time interactions.