By Donny Kwok and Casey Hall
HONG KONG/SHANGHAI (Reuters) -Alibaba Group's Hong Kong shares slumped 10% on Friday after it scrapped plans to spin off its cloud business, citing uncertainties fuelled by U.S. curbs on exports to China of semiconductors used in artificial intelligence applications.
The drop, potentially its biggest one-day fall in more than a year, wiped about $20 billion off the Chinese tech giant's market value.
It was the first market reaction in Asia since the stunning strategy reversal was announced late on Thursday. The company's U.S. listed securities closed down 9%.
"The cancellation of a full spin-off of AliCloud is a negative surprise," said Nomura analyst Shi Jialong in a note.
Alibaba's concerns over the U.S. export curbs announced by Washington in October come on the heels of similar worries raised this week by Chinese social media and gaming company Tencent Holdings which said the restrictions would force it to seek domestically produced alternatives.
Alibaba, once Asia's most valuable stock, was worth around $830 billion at its peak in October 2020 but is now valued at less than one fourth, as the e-commerce company took centre-stage in Beijing's technology sector crackdown and as the Chinese economy slowed.
The latest Alibaba news underscores broader hurdles facing China's tech companies, with the export curbs making it harder for them to get crucial chip supplies from U.S. companies.
In March, Alibaba announced plans to carve out the cloud business as part of the biggest restructuring in its 24-year history that broke the company up into six units.
Analysts had estimated then the cloud division could beworth $41-$60 billion but had warned that its listingcould attract scrutiny from both Chinese and overseas regulatorsdue to the reams of data it manages.
The Hangzhou-based company, in announcing its quarterly earnings on Thursday, also put on hold a listing plan for its Freshippo groceries business.
Analysts also said news from Thursday that the family trust of Alibaba co-founder and former chief Jack Ma planned to sell 10 million American Depository Shares in Alibaba was likely impacting shares.
"Despite no longer being involved in operations, we believe (Ma's) selling Alibaba at a depressed valuation may hurt sentiment," UBS analyst Kenneth Fong said in a note.
FOCUS ON AI
On Thursday, Alibaba Chairman Joseph Tsai told a post-earnings call that the company would now focus on growing the cloud business and providing investment for its artificial intelligence (AI) drivers.
Some analysts said the reversal on the spin-off would assist Alibaba's AI push.
"The company believes the chip ban might materially and adversely affect its ability to offer products and services in the longer term. But (it) also points to the increasing importance of retaining the cloud unit given the surging demand for AI computing in China," said US Tiger Research analyst Bo Pei.
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with the 224.32 billion expected by analysts, LSEG data showed.
Eddie Wu, chief executive of Alibaba, detailed the company's future strategy on the call, saying that each of its businesses would face the market more independently and that they would conduct a strategic review to distinguish between "core" and "non-core" businesses.
The company said it will press ahead with a listing of Alibaba's logistics arm, Cainiao, which applied for a Hong Kong initial public offering in September.
It is also preparing for external fundraising for its international digital commerce unit that houses overseas platforms such as Lazada and Alibaba.com.
(Reporting By Donny Kwok and Josh Ye in Hong Kong, Casey Hall and Gu Li in Shanghai; Writing by Anne Marie Roantree and Brenda Goh; Editing by Muralikumar Anantharaman)
