Last September, Chinese e-commerce giant Alibaba established its own semiconductor segment with an eye towards building artificial intelligence (AI) inference chips. On Tuesday, the corporation unveiled the first semiconductor developed by its T-Head subsidiary, Hanguang 800. The firm claims that the component is powerful enough to complete complex operations that used to take hours in mere minutes.
Consequently, the Sino conglomerate plans on using its new high-performance chip to further its e-commerce and cloud computing ambitions.
Better Chips, Better Platforms
Notably, Alibaba stated that it doesn’t plan to make the Hanguang 800 available for sale. Instead, the corporation intends to use the chip to optimize its existing operations. For instance, the company notes that it’s using the processor to power the search, translation, advertising, and intelligent customer service features of its online marketplaces.
To illustrate the power of its new chip, Alibaba explained how it considerably increases the speed at which its Taobao platform processes input. Previously, the e-commerce site took five hours to categorize the 1 billion product images merchants upload to it every day. After implementing the Hanguang 800 into its operations, Taobao added the images to its search and personalized recommendations indexes in just five minutes.
It’s worth noting that Alibaba needed to optimize its platform due to recent international expansion. In July, the corporation opened its e-commerce storefront to U.S.-based merchants. The firm likely opened up the service because one-third of its buyers live in America. However, while the conglomerate dominates the Chinese market, it has to compete with established rivals like eBay and Amazon for customers in the U.S.
Accordingly, Alibaba is smart to invest in making its e-commerce platform more efficient—specifically its auto-translation capability. Moreover, by making its own chips, the firm has protected itself from trade war headwinds. If the Trump administration blacklists Alibaba the same way it did Huawei, the firm won’t have to deal with suddenly losing access to critical infrastructural components and support.
Alibaba doesn’t just intend to compete with Amazon on the e-commerce front, though. The corporation notes that it will use the Hanguang 800 to power its cloud computing service.
Alibaba’s Cloud Computing Ambitions
Daniel Ives, head of equity research at Wedbush Securities, told CNBC that China’s enterprise cloud computing market is worth $100 billion. As such, the firm that becomes the local equivalent to Amazon Web Services will be in for a massive profit. Last November, Alibaba’s CEO said that cloud computing would be “the main business of Alibaba in the future.”
However, as of last quarter, the firm’s cloud segment isn’t yet ready to achieve total market dominance. Admittedly, by market share, Alibaba is China’s cloud leader. In Q2 2019, the firm’s web services division represented seven percent of its overall revenue by generating $1.13 billion. As such, the segment experienced a growth rate of 66 percent year-on-year.
However, despite that impressive improvement, the business was still operating at a loss.
To bring the segment into maturity, Alibaba needs to beef up its web services infrastructure. Stateside, Amazon’s cloud division generated $8.38 billion last quarter because the firm has a 34 percent domestic market share.
If T-Head can keep developing high-performance chips for Alibaba, the corporation will genuinely become the Chinese Amazon.