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August 23, 2016

China’s Kingsoft to take on rival Alibaba in cloud computing

News: Alibaba vice chairman Joseph Tsai described some of its competitors as “pretenders.”

By CBR Staff Writer

Chinese software firm Kingsoft is readying to compete with Alibaba Group in the fast growing market for cloud-computing services.

Co-founder of smartphone maker Xiaomi, Lei Jun, is the chairman of Kingsoft.

Kingsoft Chief Executive Officer Hongjiang Zhang is preparting to exploit the potential of the new businesses from mobile games to cloud computing in a bid to achieve a turnaround.

Zhang told Bloomberg News that cloud services are projected to witness a high growth in the coming years as Chinese companies shift IT onto the internet, and no company can have a monopoly in the market.

Alibaba vice chairman Joseph Tsai, in the latest earnings call of the company, said that no Chinese firm could “match” its strength in the cloud services markets.

Tsai described some of its competitors as “pretenders.”

In contrast, Zhang said his “much-smaller company” can rival Alibaba and other major companies in the industry. 

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Kingsoft said that it was the fastest-growing player in cloud services in 2015, citing IDC research.  

Zhang was quoted by the publication as saying: "In gaming and video cloud and healthcare, we are the leader, so I’m quite confident we will have our place and we’re gaining market share while increasing revenue.

"It’s still far from breaking even but the key point I want to make here is that break-even is not our priority and I don’t think it’s any player’s priority at this moment in China."

The cloud division was a main reason for the company to witness nearly 30% increase in its capital expenditure in its latest quarter. The jump in spending is weighing on the company.

It recorded a CNY807.6m ($121.6m) loss for the June quarter, largely led by an sharp increase in provisions for impairment on the value of two of its investments.

It expects Kingsoft Cloud and new mobile games to help the company to return to profits.

So far this year, Kingsoft’s share price has fallen by more than 20%, partially due to writedowns on its bets.

Zhang added: “We’re not a niche; we provide all the services our competitors provide.

"This is an enterprise play and in the enterprise market there’s never one winner."

In January 2015, Xiaomi had bought a 3% stake in Kingsoft, in a deal with Tencent reportedly worth $67.99m.

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