BEIJING, November 16 (TMTPost)— The U.S.-listed shares of Alibaba Group slumped as much as 10% and settled about 9.1% lower Thursday after Chinese internet giant disclosed the spinoff plan of its cloud unit was shelved, highlighting elevated uncertainty that Chinese firms are facing amid increasing U.S. tech curbs.
In a report about the financial results for the third quarter, Alibaba said it decided not to proceed with a full spinoff of Cloud Intelligence Group as the recent expansion U.S. export restrictions on advanced computing chips has created uncertainties for the unit’s prospects. The Hangzhou-based company believes the spinoff may not achieve the intended effect of shareholder value enhancement, according to the report.
The aforementioned U.S. move is a new rule introduced October 18, with an aim to limit China’s access to advanced semiconductors that could fuel breakthroughs in artificial intelligence (AI) and sophisticated computers. The rule was supposed to come into effect following a 30-day public comment period. But AI chip giant Nvidia said on October 25 that the U.S. government informed the licensing requirements, which is applicable to its products having a “total processing performance” of 4800 or more and designed or marketed for datacenters, were effective immediately.
Alibaba, at the financial report released on Thursday, warned the new export control “may materially and adversely affect” the cloud unit’s ability to offer products and services and to perform under existing contracts, thereby negatively affecting the company’s results of operations and financial condition. “These new restrictions may also affect our businesses more generally by limiting our ability to upgrade our technological capabilities,” the company said.
While scrapping the spinoff plan of Cloud Intelligence Group, including cloud, AI, DingTalk and other businesses, Alibaba reiterated its commitment to AI. It said it will focus on "developing a sustainable growth model for the cloud unit under the fluid circumstances".
“Circumstances have changed”, so the company now focus on how to grow the cloud business, and a big part of it is “to provide cash to make investments, because in the AI-driven world, develop a full-blown business based on a very networked and highly scaled infrastructure, it requires investment,” Alibaba Chairman Joseph Tsai told analysts at an earnings call Thursday.
Answering a question about the sustainable growth model for the cloud business at the call, Alibaba CEO Eddie Wu said his company will focus on public cloud for the CPU-centered trational cloud computing business. Moreover, Wu said Alibaba is well prepared to provide great value to the Chinese market amid a transition to GPU-based AI computing, because it has always been supporting one cloud with multiple chips and it has these different layers platforms as a service infrastructure, which is able to support heterogeneous architecture at all of these different levels.
At the report, Alibaba disclosed the plan for initial public offering (IPO) of another arm-- Freshippo (Hema), a grocery stores operator under the China commerce segment, has been put on hold as it evaluates market conditions and other factors would contribute to a successful transaction to boost shareholder value.
The recent disclosure suggests Alibaba sharply reversed from the listing efforts following its largest ever restructuring earlier this year, and will have only one arm to go public in the near term.
Alibaba announced late March that it decided to split into six business groups, including Taobao Tmall Group, Alibaba International Digital Commerce Group, Local Services Group, Cainiao Smart Logistics Network Limited, Cloud Intelligence Group, Digital Media and Entertainment Group. Five of these major business groups have the flexibility to raise external capital and potentially to seek its own IPO, with the exception of Taobao & Tmall Group, which remains wholly-owned by Alibaba Group. Each business group is fully responsible for its performance, with financial independence.
Alibaba said in May that its board of directors approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, aiming to complete the breakup in the next 12 months and make the group an independent publicly listed firm. Listing plans about two other business groups also got the nod from Alibaba’s board in May. Freshippo was approved to execute an IPO, and expected to be completed in the next 6 to 12 months. Cainiao was approved to explore an IPO with the target to complete the deal in the next 12 to 18 months.
Alibaba announced late September that it has submitted a plan to spin off Cainiao to the Hong Kong Stock Exchange (HKEX). A prospectus released in the meantime showed Cainiao has applied for IPO in Hong Kong, with Citigroup Inc, Citic Securities Co., Ltd and JPMorgan Chase & Co as joint sponsors.