Alibaba Group Holding Ltd announced on Wednesday the establishment of a dedicated chip subsidiary that aims to create customized artificial intelligence chips and embedded processors to further support the tech giant's sprawling cloud and internet of things businesses.

The company plans to launch its first indigenous AI interference chip - AliNPU - in the second half of 2019, Chief Technology Officer Zhang Jianfeng told its annual cloud computing conference in Hangzhou.

Zhang said the company has embarked on developing its own quantum processors, and is looking to roll out genuine quantum chips in two to three years.

"We are confident that our advantages in algorithm, data intelligence, computing power and domain knowledge on the back of Alibaba's diverse ecosystem will put us in a unique position to lead real technological breakthroughs in disruptive areas, such as quantum and chip technology," he said.

The newly-formed entity is the merger of the chip team of DAMO Academy, Alibaba's in-house technology and science research arm, and microchip maker C-SKY Microsystems Co Ltd which it acquired in April.

The new company, which is likely to have 200 to 300 researchers, aims to operate independently in the long run and become self-sufficient following an initial financial injection from Alibaba.

The AliNPU chip has potential for use in autonomous driving, smart cities and smart logistics. The goal is to build a robust, cloud-based IoT infrastructure, providing computational power for the company's data centers, as well as advancing IoT businesses ranging from smart homes to smart logistics.

Zhang added the company's Hangzhou-based quantum hardware team is developing high-precision, multiple-qubit superconducting quantum processors.

"The establishment of the chip firm is a clear indication that Alibaba is extending its innovation capabilities to the manufacturing sector. The future of the real economy holds the key to the integration of manufacturing and services," said Xu Qiyuan, director of the economic development division of the Institute of World Economics and Politics at Chinese Academy of Social Sciences.