On Monday, the Hong Kong listed shares of China’s Alibaba Group experienced a significant drop of over 4%. This decline followed the unexpected departure of former CEO Daniel Zhang from Alibaba’s cloud computing business. Alibaba communicated Zhang’s decision to leave the cloud unit through an internal letter to its staff, as reported by Reuters. Consequently co-founder Eddie Wu stepped in as the acting CEO and chairman of the cloud division. Zhang also handed over his role as group CEO to Wu as scheduled.
Who is Alibaba CEO Daniel Zhang? Quits from Cloud Server Business
This cloud unit is China’s largest cloud provider, holding a substantial 34% share of the market, as reported by research consultancy Canalys in June. It also houses DAMO Academy which serves as Alibaba’s research arm for chips and artificial intelligence. The cloud business is set to be spun off from Alibaba by May of the following year as part of the group’s restructuring efforts.
Zhang had previously been overseeing both the group and the cloud intelligence unit concurrently. However, in June the company had announced his decision to step away from his group roles to solely focus on the cloud business.
Li Chengdong, the head of the Beijing-based Haitun think tank with a focus on e commerce, suggested that Zhang’s departure seemed to be a personal choice. It occurred at a time when Alibaba Cloud was facing increasing competition from state-owned telecom companies and Huawei Technologies, along with a more stringent regulatory environment. Li noted that Alibaba Cloud had encountered challenges in retaining government and state owned enterprise clients which were once a stronghold for the company.
“During his leadership tenure, Alibaba Cloud’s business did not improve significantly despite his efforts. Zhang likely realized that the challenges facing Alibaba Cloud’s lackluster growth were beyond what he could influence or control as an individual executive,” Li remarked.
Li did not foresee Zhang’s departure having a substantial impact on Alibaba Cloud’s listing plans as they would largely depend on the unit’s business performance. Alibaba stated its commitment to continue with the spin-off plan under a separate management team to be appointed.
Vey-Sern Ling, the managing director at Union Bancaire Privee viewed this development positively, as it would offer Alibaba and the cloud business an opportunity to start anew. Regarding the share price decline – he mentioned that concerns related to macroeconomic factors and geopolitical issues concerning China also contributed to the downward pressure on the stock.
In its letter, Alibaba mentioned that Zhang will continue to contribute to the company by applying his expertise in a different manner. Additionally, Alibaba intends to invest $1 billion in a technology fund that Zhang will establish. Notably, Alibaba has also granted Zhang an “emeritus” title marking the first occurrence of such an honor in the company’s history.
Analysts have estimated the value of Alibaba’s cloud unit to range from $41 billion to $60 billion. However, they have noted that the extensive data it manages could potentially attract regulatory scrutiny both domestically and internationally. Following these developments, Alibaba’s stock experienced a decline of up to 4.4%, reaching its lowest point since August 23.
Discover more from industrialfront
Subscribe to get the latest posts sent to your email.