Alibaba shuts down cloud business unit valued at $60b citing US chip export ban.

Alibaba Group has cancelled its plans to spin off its cloud computing division, citing uncertainty brought on by American export restrictions on processors used in AI applications.

The United States’ decision last month to prohibit the export of further chips used in artificial intelligence (AI) to China has caused significant uncertainty for the nation’s leading tech businesses. Tencent Holdings reported on Wednesday, that its cloud services were being impacted by the restrictions.

The Chinese e-commerce firm, which in March had revealed plans to break apart the cloud business as part of the biggest restructuring in its 24-year history, also announced on Thursday that its second-quarter revenue was in line.

The company announced that it would be ready for external finance for its global digital commerce group, but it also postponed plans for an IPO of its Freshippo grocery business.

In September, Cainiao, Alibaba’s logistics company, submitted an application to list in Hong Kong.

At market open, Alibaba’s US-listed shares were down 8.5%.

Thomas Hayes, chairman of hedge fund Great Hill Capital, stated on the social media platform X that “the market does not like surprises.””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.”

Analysts had projected in March that the cloud division may be valued between $41 and $60 billion, but they had cautioned that because of the massive amounts of data it handles, Chinese and foreign regulators might monitor its listing.

Daniel Zhang, the former group CEO of Alibaba, resigned abruptly in September, barely two months after shifting his attention to cloud computing.

Eddie Wu, a co-founder of Alibaba Group and a close aide to former CEO Jack Ma, was later named CEO of both Alibaba and the cloud division by the corporation. Additionally, Zhang gave Joseph Tsai, a fellow co-founder, the leadership of the group.

During a post-earnings call with analysts, Tsai stated, “Alibaba will not pursue a full spin-off of Cloud Intelligence Group in light of uncertainties created by recent U.S. export restrictions on advanced computing chips.”

Rather, he said, the group would concentrate on expanding the cloud business and financing its AI drivers.

Wu said that the cloud unit will keep up its own operations.        

Additionally, according to regulatory documents on Thursday, Ma’s family trust intends to sell 10 million Alibaba Group Holdings American Depository Shares for approximately $871 million.

Development Model

In addition to outlining Alibaba’s future plan, Wu, who was presenting the company’s earnings for the first time on the call, said that each of its businesses would approach the market more autonomously and that they would carry out a strategic review to differentiate between “core” and “non-core” operations.

“Core businesses are where we will keep our long-term focus, intensively invest resources, pursue R&D, enhance user experience,” he stated. Alibaba was divided into six divisions by the reorganization, which was overseen by the parent company.

“As for the non-core businesses, we will realize the value of these assets by making them profitable as soon as possible or through other means of capitalization.”

He mentioned four units, including the platform for work-related communication and collaboration DingTalk and the platform for buying and selling used products Xianyu, as ones that will be permitted to function as separate subsidiaries. They will also invest in and foster creative businesses for the future.

“User first” and “AI-driven” will be the internet giant’s two primary strategic priorities moving forwards, he informed employees in September.

EARNINGS SUMMARY

According to LSEG data, Alibaba’s second-quarter revenue of 224.79 billion yuan ($31.01 billion) was in line with the 224.32 billion experts had predicted.

The pace of China’s economic recovery has varied. Consumer confidence has been negatively impacted by the crisis-hit real estate industry, even though the industrial and retail sectors have outperformed expectations.

Alibaba’s commerce retail revenue from customer management, which measures the amount of money merchants provide Alibaba for placements and promotions, increased by 3% annually.

Alibaba encouraged retailers to set aggressive prices for the nation’s Singles Day celebration in order to compete with lower-cost year-round sellers like Douyin and PDD Holdings.

However, Alibaba International Digital Commerce, which operates websites like Lazada and AliExpress, announced a 53% increase in revenue, with retail income up 73% year over year. Experts had anticipated that Alibaba’s robust global expansion may counterbalance its lackluster domestic market.

Temu, owned by PDD Holdings, has increased the level of competition in the cross-border platform market.