Alibaba Cancels Cloud Business Separation Plan Due To US Export Restrictions

Alibaba co-founder Joseph Tsai. (photo: twitter @alibaba_cloud)

Alibaba Group announced the cancellation of its cloud business separation plan, citing uncertainty caused by US export restrictions on chips used in artificial intelligence (AI) applications.

The US decision last month to ban chip exports for artificial intelligence to China has created great uncertainty for major Chinese technology companies.

Tencent Holdings said on Wednesday November 15 that it saw these restrictions affect their cloud services.

The announcement on Thursday, November 16 comes at the same time as second-quarter earnings in line with China's e-commerce group, which in March announced plans to separate the cloud business as part of the largest restructuring in its 24-year-old history.

The company also postponed its initial public offering (IPO) plan for Freshippo's grocery business, but said it would set up external funding for its international digital trade group. As a result, Alibaba's US shares fell 8.5% at market opening.

"The market doesn't like surprises," said Thomas Hayes, chairman of the Great Hill Capital hedge fund on social media platform X. "Investors hope to get shares separate from the cloud business in the hope that the segment can reach higher value in the stock market due to its potential growth."

Analysis in March estimated the value of the cloud division could reach between $41-60 billion, but warnings that the listing could draw attention from Chinese and foreign regulators due to the large amount of data being managed.

In September, Alibaba's former group CEO, Daniel Zhang, suddenly resigned just two months after focusing his attention on cloud computing.

The company later appointed Eddie Wu, co-founder of Alibaba Group and former longtime aide to former leader Jack Ma, as CEO of Alibaba and cloud business. Zhang also handed over the group chair to another founder, Joseph Tsai.

"Alibaba will not pursue a full separation of the Cloud Intelligence Group given the uncertainty created by the recent US export restrictions against advanced computing chips," Tsai said.

Instead, the group will focus on cloud business growth and provide investment for its artificial intelligence (AI) movers, he added. "The cloud unit will continue to maintain its operations independently," said Wu.

The regulatory file also revealed on Thursday that Ma's family trust plans to sell 10 million American Depository Shares Alibaba Group Holdings worth about $871 million.