Chinese internet giant Tencent Holdings is cutting prices for cloud services by up to 40 percent 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 said last month it would slash prices
for some cloud products by up to 50 percent. State-owned China Mobile joined
Tencent on Tuesday in announcing cuts, saying prices for some services would be
reduced by up to 60 percent 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 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 percent 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. © Reuters