Tencent slashes cloud service prices by up to 40% as price war intensifies

China Mobile

17/05/2023 10:26

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 will
slash prices for some cloud products by up to 50%. State-owned
China Mobile  0941.HK  also 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
war was also being driven in part by high sales targets despite
slowing growth for the market.
    Chai added that a more challenging cloud market will 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 break out 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.
Alibaba reports on Thursday.
    
    

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