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China’s Alibaba to scrap cloud unit spinoff in response to US chip curbs

A man walks past a logo of Alibaba Group at its office building in Beijing, China August 9, 2021. REUTERS/Tingshu Wang

China’s Alibaba plans to scrap cloud unit spinoffs in response to US chip curbs. In reaction to export restrictions imposed by the United States on processors used in artificial intelligence applications, China’s Alibaba Group Holding (9988. HK) announced on Thursday that it will abandon plans to spin off its cloud computing business.

It also announced revenue for the second quarter that was in line with market forecasts, which caused its U.S.-listed shares to drop by almost 5% in premarket trade.

“The recent expansion of U.S. restrictions on the export of advanced computing chips has created uncertainties for the prospects of Cloud Intelligence Group,” according to Alibaba.

According to statistics provided by LSEG, the e-commerce behemoth reported quarterly sales of 224.79 billion yuan, equivalent to $31.01 billion. This figure is higher than the average forecast of 224.32 billion yuan provided by experts.

The economic recovery in China has been inconsistent. Although the industrial and retail sectors performed better than expected, the property sector continues to undermine consumer confidence, which is still experiencing a crisis.

Alibaba has resorted to pressing merchants to price aggressively during its Singles Day event, aiming to take on competitors like Douyin and PDD Holdings (PDD.O.) Pinduoduo, who have been selling lower-cost items year-round. This is because Alibaba wants to take on competitors selling lower-cost products throughout the year.

Eddie Wu, one of Alibaba Group’s co-founders and a long-time lieutenant of previous leader Jack Ma, took over as CEO of Alibaba Group from former group chief executive Daniel Zhang in September. These are the first quarterly results for Eddie Wu, one of Alibaba Group’s co-founders.

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