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UPDATE 2-Alibaba Cloud announces steep price cut in race for AI customers

(Adds analyst comments in paragraphs 6-12)

By Josh Ye

HONG KONG/SHANGHAI, Feb 29 (Reuters) - China's Alibaba Cloud on Thursday said it will slash prices of some of its products by as much as 55%, its most severe price cut to date, amid intensifying competition to attract heavy users, particularly artificial intelligence software developers.

This would be the second time the cloud arm of Chinese e-commerce leader Alibaba Group Holding has cut prices in less than a year after reductions of as much as 50% in April.

The cloud service provider said it would lower prices of over 100 products by an average of 20%.

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The price cuts constitute Alibaba's latest effort to persuade developers to build data-intensive AI models and applications using its cloud services.

Rivals including Tencent Holdings and Huawei Technologies, which also cut cloud prices last year following Alibaba's lead, have offered a number of promotions to convince tech companies to develop AI within their ecosystems

Alibaba Cloud was one of China's earliest entrants to cloud computing. It currently serves about one-third of the local market.

Canalys analyst Zhang Yi said Alibaba's discount campaign will likely push its competitors to lower prices as well.

"Alibaba still follows the strategy of attracting customers with low prices, targeting especially the medium and small customers who are more price-sensitive," she said.

Another industry analyst who declined to be named because he is not permitted to speak to media said that Alibaba's price cutting exercise this time is more aggressive than usual, showing the company's focus on courting customers.

"The discount even applies to the undelivered orders for existing customers. This is seen as breaking the norm of the market," he said.

According to Alibaba, existing customers get to enjoy the new cheap rates if they choose to renew their contracts with Alibaba for another year.

The analyst added that it was also unusual that Alibaba slashed prices for some of its new products whereas it was only willing to discount old products in the past, marking another break from the norms.

(Reporting by Josh Ye and Brenda Goh; Editing by Jacqueline Wong, Christopher Cushing and Emelia Sithole-Matarise)