Tencent cuts cloud service prices up to 40% to fend off rivals (updated)

China Mobile

17/05/2023 15:25

(Adds exec comments in paragraph 10, 11)
    By Josh Ye
       HONG KONG, May 17 (Reuters) - Chinese internet giant
Tencent Holdings  0700.HK  is cutting prices for cloud services
by up to 40% from June amid similar moves from rivals that have
plunged the sector into a price war.
    The fierce competition comes amid soft corporate demand,
with the Chinese economy in the midst of a wobbly recovery since
abandoning strict COVID-19 restrictions last year.
    Alibaba Group Holding Ltd  9988.HK  said last month it would
slash prices for some cloud products by up to 50%. State-owned
China Mobile  0941.HK  joined Tencent on Tuesday in announcing
cuts, saying prices for some services would be reduced by up to
60% for a limited time.
    Charlie Chai, an analyst at 86Research, said Chinese cloud
service providers had in the past made efforts to avert a price
war but "at the end of the day they still went down this path".
He noted the companies had expanded aggressively and now had too
much capacity.
    Wei Yunfeng, a researcher at data firm IDC, said the price
cuts were triggered in part by high sales targets despite
slowing growth for the market.
    Chai said a more challenging cloud market would force
companies to focus on product differentiation and that Baidu
 9888.HK  was well positioned as it had "unique, AI-centric
products".
    "For participants that choose to join the war, the near-term
margin impact can be significant," he said, estimating it could
take 4 to 7 percentage points off their cloud operating profit
margins.
    Alibaba's cloud revenue accounts for about 9% of its total
revenue. Tencent does not provide separate figures for cloud
revenue.
    Tencent on Wednesday marked a return to revenue growth in
the first quarter as it recovered from COVID-related disruptions
and a regulatory freeze on gaming licences a year earlier. 
    James Mitchell, Tencent's chief strategy officer, told
analysts on a call: "The impact of price cuts on Tencent as a
whole is not notable."
    Mitchell said cloud services only represent "a mid single
digit percentage" of Tencent's total revenue. 
    Moreover, price cuts only apply to its
infrastructure-as-a-service business, which represent only a
portion of Tencent's cloud services.  
    Alibaba reports on Thursday.

 (Reporting by Josh Ye; Editing by Edwina Gibbs and Bernadette
Baum)
 ((Josh.Ye@thomsonreuters.com;))