Chinese internet companies are slowing down, says Alibaba • The Register

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Alibaba’s cloud operation thinks it has reached market saturation among China’s big internet companies, but is seeing a new wave of demand from industrial firms.

The company’s results for the three months to June 30 saw Alibaba Cloud earning $3.57 billion in revenue, of which $2.640 million was spent by customers other than Alibaba’s myriad business units. Revenue was up 10% year-over-year – a very welcome number as Alibaba’s overall business grew just 1% to $30.7 billion, largely in due to a COVID-related slowdown in China.

Alibaba’s earnings announcement highlighted that “non-internet industries contributed 53% of cloud revenue, up more than five percentage points from the same quarter last year.”

During the company’s earnings call, executives referred to an “internet industry deceleration” that has dampened Alibaba’s cloud growth.

Alibaba Chairman and CEO Daniel Zhang explained that Alibaba Cloud’s strategy is therefore to chase new customers in “booming” industries.

“Industrial digitalization is a trend,” he said. “I think it’s not a cyclical opportunity. It’s like a structural, I mean, long-term opportunity. And that’s why I think in China and in the global market, we actually have repositioned the cloud as one of our core strategies.”

Alibaba Cloud also plans to develop 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 imperative.

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

Which suggests it hasn’t been deployed yet.

Life for Alibaba’s core e-commerce business was tough at home, thanks to China’s fierce and prolonged COVID lockdowns. International retail trade also fell 4%, due to supply chain issues caused by Russia’s illegal invasion of Ukraine. European sales were the main source of the drop, thanks to the fall in the 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 recording 10% year-on-year growth.

On the same day as its quarterly results, Alibaba appointed 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 12-member board now has seven independent directors.

Another change within the company leaked this week is its disentanglement from financial services subsidiary Ant Group. Ant staff have stepped down from their roles at Alibaba as the two organizations distance themselves. Alibaba and Ant Group founder Jack Ma is also reportedly preparing to pull out of the two companies – a move seen as a response to China’s tightening regulations on the internet and financial services companies. ®

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