China’s Kingsoft Aims to Take on Alibaba in Cloud Computing

(Bloomberg) -- Kingsoft, the Chinese software company whose chairman is Xiaomi co-founder Lei Jun, is preparing to go head-to-head with Alibaba in the rapidly growing market for cloud computing services.

Kingsoft CEO Hongjiang Zhang is banking on new businesses from mobile games to cloud computing to help pull the company out of the red. Cloud services in particular are expected to take off in coming years as Chinese corporations begin to move IT onto the internet, and no one company can own a monopoly in the market, Zhang told Bloomberg News.

During Alibaba’s latest earnings call, Vice Chairman Joseph Tsai said that no Chinese company could match its firepower in the space, describing some of its rivals as “pretenders.” But Zhang said his much-smaller company can compete head-on against Alibaba and other industry titans. In its latest quarterly report, the company cited IDC research showing Kingsoft was the fastest-growing player in cloud services in 2015, when that business more than tripled.

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"In gaming and video cloud and healthcare, we are the leader, so I’m quite confident we will have our place and we’re gaining market share while increasing revenue," he said. "It’s still far from breaking even but the key point I want to make here is that break-even is not our priority and I don’t think it’s any player’s priority at this moment in China."

The cloud unit was a key reason for a near-30 percent jump in capital expenditure in its latest quarter. But that spending is taking its toll.

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Kingsoft’s share price had fallen 21 percent this year before today, hammered in part by bets that have resulted in major writedowns. The company posted an 807.6 million yuan loss in the June quarter, thanks largely to provisions for impairment on the value of two of its investments. The company hopes Kingsoft Cloud and new mobile games will help reverse that trend.

"We’re not a niche; we provide all the services our competitors provide," he added. "This is an enterprise play and in the enterprise market there’s never one winner."