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Alibaba plans to spin off cloud division within 12 months

Approves breakup after missing revenue estimate

Chinese e-commerce giant Alibaba is aiming to spin off its cloud business within 12 months.

Alibaba Group Holding said its board of directors has approved a spin-off of the Cloud Intelligence Group, via a stock dividend distribution to shareholders. The latest move follows the announcement in March that the company planned to split itself into six smaller entities.

As The Register reported at the time, this is intended to let the divisions respond faster to market changes.

Alibaba Group CEO Daniel Zhang said during the company's Q4 2023 earnings call yesterday that the cloud division was being spun off first because its business model, customer profile and stage of development is "fundamentally different from the other consumer-focused businesses in the Alibaba ecosystem."

Full independence will allow the Cloud Intelligence unit to "further sharpen its business strategy" and optimize its operations and organization, he added.

"In cloud computing, progress in industrial digitization and the emergence of AI have created a higher demand for computing power, and the foundation models have expanded AI's application in all aspects of life. Alibaba Cloud will focus on seeding these historical opportunities to maximize its market potential," Zhang said.

The restructuring will see Alibaba Group morph into a holding company, focused on capital management, while each of the business groups will operate with a high degree of independence led by their own CEO.

The spin-off will, however, be subject to restructuring of certain assets, liabilities and contracts, as well as market conditions, regulatory reviews and approvals in relevant jurisdictions, Zhang said.

"We intend to structure the spin-off in the most tax-efficient way for our shareholders," he added.

Last month, Alibaba Cloud announced it was making cuts of up to 50 percent to the cost of some of its online services, including its Elastic Compute Service (ECS), Object Storage Service (OSS), network, database, Content Delivery Network (CDN), and security products available in the Chinese market.

Industry talk at the time was that this was to secure greater market share ready for a potential public offering, but as we reported last year, Alibaba believes it has reached a "market saturation" point in China, and is having to chase new customers in "sunrise" industries.

Alibaba is also starting a process to explore an IPO for its Cainiao Smart Logistics Group, with the aim of completing this in the next 12 to 18 months, plus an IPO for its Freshippo retail business, expected to be completed in the next 6 to 12 months.

For the quarter ended March 31, Alibaba reported revenue of $30.316 billion, an increase of 2 percent over the same period last year. Net income was $3.2 billion, compared to a net loss of $2.6 billion for the same quarter last year, which the company attributed largely due to net gains arising from equity investments in publicly-traded companies.

For the cloud business, total revenue was $3.57 billion, a decline of 3 percent year-on-year. Alibaba said this was due to delays in delivery of hybrid cloud projects because of the COVID-19 resurgence in China in January, as well as the impact from "a top customer using our cloud service and switching to self-build infrastructure for its international business."

Zhang was bullish about Alibaba Cloud's future, saying that "if you zoom out from the short-term fluctuations in cloud revenues and look back at Ali Cloud development over the past 14 years, we see massive market potential and remain confident at Cloud's future."

The rise of AI brings new historic opportunities, he claimed. "the emergence and the broad application of artificial intelligence, large models and various vertical models have raised the new requirements for computing power." ®

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