Alibaba Group abandons plans for the spinoff of its extensive cloud computing business

Chinese e-commerce giant Alibaba Group has abandoned its plans to spin off its extensive cloud computing business, marking a significant setback to the company’s recent overhaul strategy aimed at streamlining operations and revitalizing its position as an e-commerce leader. The decision, revealed alongside the quarterly earnings report, underscores the challenges Alibaba faces due to global restrictions on the export of advanced computing chips, particularly impacting its Cloud Intelligence Group.

Alibaba reported quarterly sales of 224.79 billion yuan ($31 billion) and a net income of 27.7 billion yuan. Despite efforts to rebound from the effects of Covid and a regulatory crackdown, Alibaba’s sub-standard Singles’ Day campaign raised concerns about its ability to regain market share from competitors and appeal to consumers and corporate users.

The recent escalation of U.S. restrictions on the export of advanced computing chips was cited by Alibaba as a key factor influencing the decision to call off the Cloud Intelligence Group spinoff. The company expressed concerns about the uncertain prospects for the cloud business under these conditions and doubts that a full spin-off would enhance shareholder value.

Instead, Alibaba aims to focus on devising a sustainable growth model for its cloud division amid the fluid circumstances. This decision is part of Alibaba’s broader effort to navigate challenges posed by the pandemic and a regulatory environment targeting tech giants. The company faces fierce competition, particularly following an underwhelming Singles’ Day performance, where smaller, more innovative rivals gained traction.

While grappling with obstacles to its cloud spinoff, Alibaba is undertaking aggressive measures to revitalize its core consumer business. Strategies such as content creation on its e-commerce platforms, Taobao and Tmall, are being adopted to fend off competition from emerging social media platforms.

Alibaba’s pivot toward artificial intelligence (AI) emerges as a key element in its strategy to overcome challenges and foster growth. The company is making substantial investments in AI, with its cloud unit hosting half of China’s generative AI firms and serving about 80 percent of the country’s technology companies. Alibaba’s AI endeavors include the release of its large language model, Tongyi Qianwen, and investments in promising startups like Zhipu AI and Baichuan.