Recently, it has been reported that Alibaba Cloud is undergoing a new round of business adjustments, including the reduction of project-based business for customized solutions for government and enterprise customers, as well as the reduction of IoT hardware integration business. According to reports, the layoff rate of some teams in the hybrid cloud business unit has reached 30%, while the layoff rate of IoT hardware integration business is over 50%. There is currently no response from Alibaba Cloud regarding the proportion of layoffs.
On the financial report conference call on November 16th, Wu Yongming, CEO of Alibaba Group and Chairman and CEO of Alibaba Cloud Intelligent Group, made judgments and trade-offs on Alibaba Cloud's strategic direction, and determined that Alibaba Cloud will implement an AI driven and public cloud priority strategy in the next five years. At the same time, he made significant adjustments to the business management team.
On November 23rd, Alibaba Cloud announced a new round of organizational restructuring: the establishment of three new business units: Public Cloud Business Unit, Hybrid Cloud Business Unit, and Overseas Business Unit.
The Public Cloud Business Division is led by Liu Weiguang, with the goal of prioritizing scale and expanding market share; The Hybrid Cloud Business Division, led by Li Jin, meets the needs of customers in certain industries who are unable to use public clouds in the short term due to policy restrictions. The focus is on assessing profits and reducing sales of project-based software and hardware orders. Yuan Qian is responsible for the Overseas Business Division. The heads of the three business units all report to Wu Yongming, Chairman and CEO of Alibaba Cloud Intelligent Group.
On December 13th, Alibaba Cloud's Chief Business Officer, Cai Yinghua, resigned from Alibaba Cloud. Cai Yinghua is a key figure in Alibaba Cloud's promotion of government enterprise business in the past two years. Previously, he served as the President of China's government enterprise business. In March 2022, he parachuted into Alibaba Cloud and was appointed as the Senior Vice President (M7 level) of Alibaba Group.
Since Alibaba Group announced the suspension of Alibaba Cloud's spin off and listing process on November 16th, Alibaba Cloud's primary goal has shifted from going public to seeking sustained business growth. In the eyes of industry insiders, this adjustment is a continuation of the "AI driven+public cloud priority" strategy implemented by Wu Yongming after taking over Alibaba Cloud, and is also aimed at driving Alibaba Cloud to regain growth.
"When we announced a complete spin off, we hoped to demonstrate the value of this business through a 'financial engineering' approach. At that time, the operating environment in which the business operates was considered predictable, and we could make predictions about the future development of the business and communicate with investors accordingly, giving them a certain degree of transparency, as they would independently hold shares in the Cloud Intelligence Group in the future." Alibaba Group Chairman Cai Chongxin stated at the financial report meeting that, So far, the situation has changed. We are no longer focusing on financial engineering, but on how to drive cloud business growth. One of the key points is that the group needs to provide cash for investment. Because in an AI driven world, developing comprehensive business based on highly networked and large-scale infrastructure is inseparable from investment. Therefore, we hope to operate cloud business rather than spin it off To demonstrate its value to investors and to enhance its value for shareholders through future revenue and profit growth
However, in the past two years, Alibaba Cloud's revenue growth rate has not been ideal. In the fiscal year 2022 (corresponding to the natural year from April 1, 2021 to March 31, 2022), Alibaba Cloud's revenue increased by 23% year-on-year to RMB 74.568 billion, accounting for 9% of the total revenue. Meanwhile, Alibaba Cloud achieved its first annual profit in 13 years. Data shows that Alibaba Cloud's revenue scale has increased from 1.271 billion in the fiscal year 2015 to 74.568 billion in the fiscal year 2022, a 57 fold increase in 8 years.
Alibaba Cloud's highlight also stopped in the 2022 fiscal year, and since then, Alibaba Cloud's revenue growth has been slowing down. In the 2023 fiscal year (April 1, 2022 to March 31, 2023), Alibaba Cloud's revenue has only increased by 4%. The second quarter of this year is the first financial report of Alibaba after the adjustment of "1+6+N". Alibaba Cloud Intelligence Group's revenue growth rate was 4%, and the growth rate in the third quarter decreased to 2%, making it the slowest growing sector among the six major business groups of Alibaba Group.
Part of the reason is that in the past few quarters, Alibaba Cloud has actively reduced revenue from project-based contracts with lower profit margins to enhance profitability. It can be seen that the project based business for government and enterprise clients, as well as the IoT hardware integration business, that have been reduced in this adjustment, are also for the purpose of optimizing profits. "In the future, we will continue to make trade-offs between all products and business models, reduce project-based sales orders, increase investment in core public cloud products, and continuously improve the revenue quality of cloud business. We believe that adhering to the priority of public cloud can enable us to continue to reap economies of scale and technological dividends in the future." Wu Yongming said in the third quarter financial report conference call.
Looking ahead, the growth of public clouds brought about by generative AI and large model training will be the direction that Alibaba Cloud is betting on. The financial report shows that public cloud revenue accounted for over 70% of external revenue in the third quarter and achieved healthy growth, with some of the growth in public cloud revenue related to large model training and corresponding cloud infrastructure services.
However, it should be noted that as the United States increases export controls and further restricts the export of advanced computer chips and semiconductor manufacturing equipment to China, it is uncertain whether model training and related services can continue to drive Alibaba Cloud's growth.
Southern Metropolitan Journalist Ma Ningning from Shanghai