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Alibaba Cloud to Downsize Headcount by 7%, with Layoff Signaling Beginning of Its Spinoff Process 

The cloud arm of Chinese e-commerce giant Alibaba Group (NASDAQ: BABA) has begun a layoff set to affect 7% of its total workforce. Sources describe the downsizing as part of broader measures to prepare Alibaba’s cloud division for a spinoff. Furthermore, sources add that the new standalone company would ultimately pursue an initial public offering (IPO).

In late March, reports stated that Alibaba would split into six business groups capable of pursuing IPOs. The company’s shares dipped marginally in pre-market trading Tuesday on news of the layoff development.

Alibaba has reportedly begun informing affected staff of its cloud division layoff plans. Inside sources stated that the Chinese multinational tech company is offering severance packages to affected staff. The company also plans to transfer some workers to other parts of its business empire as part of the headcount shakeup. However, one of the sources stressed that the transfer scheme is not guaranteed.

Alibaba, which is on course to streamline its cloud unit into a separate company within a year, employed over 235,000 people as of March.

Last week, Alibaba CEO Daniel Zhang detailed the company’s cloud division restructuring for the first time. Zhang explained that the Asian tech giant plans to entirely relinquish control of its once-thriving Alibaba Cloud venture. According to the chief executive, the e-commerce powerhouse views giving up control of the cloud arm as unlocking potential. Free from any potentially stifling Alibaba ownership constraints, the cloud unit can attract more significant growth potential as an independent entity.

Amid Alibaba Cloud’s agenda to operate as a separately-owned business entity, some analysts value the business above $30 billion. The reason is that the cloud business sector appears primed for substantial growth following ChatGPT’s explosive popularity. Furthermore, from a back-end point of view, ChatGPT’s technology relies on cloud-based resources to train next-gen artificial intelligence models.

Despite the positive outlook by experts, Alibaba Cloud’s representatives remained mum on suggestions that the unit would benefit from the AI revolution. Instead, reports stated that the cloud unit was selected as an early IPO candidate due to its more developed business model and customer profile. Furthermore, Zhang pointed out that the business’ spinoff was to establish its overall market structure and growth potential trajectory properly. The Alibaba CEO added that he believes a standalone cloud division could potentially outgrow and outpace Alibaba in size and scale. Zhang doubled down on his belief regarding the business offshoot’s potential if it attracted sound external financing.

Approximately two months ago, Alibaba announced plans to split its services into 6 distinct standalone business groups. The company described the move as a way to “unlock shareholder value and foster market competitiveness” amid uncertain economic factors. Furthermore, Alibaba also said the six offshoot business groups revolve around its strategic priorities. The groups are Cloud Intelligence Group, Local Services Group, Tmall Commerce Group, Global Digital Commerce Group, Digital Media and Entertainment Group, and Cainiao Smart Logistics.

Each standalone business division would have its own CEO, board of directors, and potential public listing.

Alibaba Cloud to Downsize Headcount by 7%, with Layoff Signaling Beginning of Its Spinoff Process 

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