Weighing The Cons Of Alibaba's Chip Development

Alibaba Group Holding Ltd (NYSE: BABA) has developed a chip which is based on SoftBank Group Corp (OTC: SFTBY) (OTC: SFTBF) backed British chipmaker Arm Holding's architecture, and is marred in controversies, California New Times reports.

What Happened: Many tout the Japanese tech investors' sale of Arm to NVIDIA Corp (NASDAQ: NVDA) as questionable.

Related Content: Qualcomm Opposes Nvidia's $40B Arm Deal: CNBC

EU To Investigate Nvidia's Arm Deal: Reuters

The new chip will support Alibaba's data centers and servers that enhance logistics, e-commerce, and fast-growing cloud services. Interestingly, Arm has earned a name for manufacturing cutting-edge processors in both cost and power efficiency. 

Coincidentally, China suffers from an electricity crisis. Still, it is unlikely that Softbank will make a profit for Alibaba, which is also a shareholder.

Additionally, the Arm chip architecture can expose Alibaba's core computer system to political controversy.

What Can Impact Alibaba's Chip Future: Some of Arm's U.K. business technologies are based in the U.S., and some U.S. companies aim to purchase them. In 2019, U.S. ordered Arm to suspend all active contracts, support, and future involvement with Huawei Technologies as a part of its trade war with China. Arm ended every business with Huawei since the order.

Alibaba's cloud services revenue, which accounts for a tenth of the Group's total sales, rose 29% to $ 2.5 billion in the June quarter. Separately, China declared that it would prevent monopolistic behaviors by internet platform companies and the disorderly expansion of capital, Reuters reports based on country President Xi Jinping. China will crack down on practices that impede fair competition.

Price Action: BABA shares closed higher by 6.10% at $177 on Tuesday.

Photo by Fooksou Lamimo via Wikimedia