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China's internet companies are decelerating cloud consumption, says Alibaba

Starts chasing industrial digitization as its next big opportunity

Alibaba's cloud operation thinks it's reached market saturation among China's big internet companies, but sees a new wave of demand coming from industrial outfits.

The company's results for the three months to June 30 saw Alibaba Cloud win $3.57 billion revenue, of which $2.640 million was spent by customers other than Alibaba's myriad business units. Revenue grew ten percent year-over-year – a very welcome number as Alibaba's entire business grew by just one percent to $30.7 billion due largely to a COVID-related slowdown in China.

Alibaba's results announcement pointed out that "non-internet industries contributed 53 percent of Cloud revenue, up more than five percentage points compared to the same quarter last year."

On the company's earnings call, execs spoke of an "internet industry deceleration" that has put the brakes on the growth of the Alibaba cloud.

Alibaba chair and CEO Daniel Zhang explained that Alibaba Cloud's strategy is therefore to chase new customers in "sunrise" industries.

"Industrial digitization is a trend," he said. "I think it's not a cyclical opportunity. It's like a structural opportunity I mean, for the long term. And so that's why I think in China and in the global market, we actually repositioned cloud as our one of the core strategies."

Alibaba Cloud also plans to build proprietary technology capabilities "in key areas such as computing, big data and artificial intelligence" to create a unique selling proposition, and sees improving its security as an imperative.

The cloud operation also mentioned that its custom SmartNIC – launched with much fanfare in June 2022 – "is expected to become the core of our next generation of cloud computing infrastructure."

Which suggests it's not been deployed yet.

Life for Alibaba's core e-commerce businesses was tough at home, thanks to China's fierce and lengthy COVID lockdowns. International retail business dipped four percent, too, thanks to supply chain issues caused by Russia's illegal invasion of Ukraine. European sales were the main source of the fall, thanks to the falling value of the Euro and new VAT rules that made Alibaba – and not individual merchants in its marketplaces – responsible for paying the tax.

Asia did better, with the Lazada brand reporting ten percent year-on-year growth.

On the same day as its quarterly results landed, Alibaba named two new independent directors: Yun-Lien Lee, chairman of Hysan Development Company Limited and independent non-executive chairman of Hang Seng Bank Limited, and Albert Kong Ping Ng, former chairman of Ernst & Young China. Alibaba said the appointments will strengthen its governance, as its twelve-strong board now boasts seven independent directors.

Another change at the company disclosed this week is its disentanglement from financial services affiliate Ant Group. Ant staff have stepped away from roles at Alibaba, as the two organizations distance themselves. Alibaba and Ant Group founder Jack Ma has also reportedly prepared to step away from both companies – a move seen as a response to China's tightened regulation of internet and financial services companies. ®

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