HONG KONG (Reuters) – Tencent Holdings has abandoned plans to expand into virtual reality hardware. As the economic outlook cools, China’s tech giants are being forced to cut costs and cut jobs in their metaverse units, three sources familiar with the matter said. The world’s biggest video game publisher has ambitious plans to build both virtual reality software and hardware in its “augmented reality” XR division, which it launched last June, hiring nearly 300 people. Hired. He came up with the concept of a ring-shaped handheld game controller, but the fact that it was not immediately profitable and the large amount of investment required to produce a competitive product were the factors that prompted him to switch from that strategy. He was one, said two of his sources. Said. One of the sources said that according to internal forecasts, the XR project is not expected to be profitable until 2027. The unit also lacked promising gaming and non-gaming applications, according to a second source.

Because the information is confidential, the name of the source has not been disclosed. “It no longer fits perfectly under the new strategy of the company as a whole,” said a first source. Earlier this year, Tencent also planned to acquire gaming phone maker Black Shark. With experience in supply chain and inventory, Black Shark believed they could strengthen their hardware push and add 1,000 people to their unit.

However, a change in Tencent’s strategy, increased regulatory scrutiny and an expected lengthy review process ultimately led it to walk away from the deal, one of the sources with direct knowledge of the matter said. increase.

Tencent has advised most staff in the division to look for other opportunities, sources said, confirming a report from Chinese tech news outlet 36Kr on Thursday.

Tencent declined to comment on the Black Shark deal and whether Beijing’s scrutiny made the deal worse. He said he was adjusting some business teams due to a change in plans.

The company also said on Thursday that it would not disband its XR division.

Shares of Tencent fell 2.5% after the Reuters report.

The launch of the XR unit comes amid growing global interest in the concept of the metaverse of virtual worlds, and is a rare addition to hardware from Tencent, primarily known for its software including its suite of gaming and social media applications. indicated the exit.

It also entered competition with Western peers such as Meta Platforms and Microsoft, which built their own metaverse and had their own virtual reality hardware projects.

Tencent briefly dabbled in virtual reality about seven years ago, according to one of the sources, and its interest in the field picked up after learning of new breakthroughs in pancake lenses and more powerful displays. It will be revived in 2021. Strong sales of Meta’s Quest headset were also a driving force, the person added.

But last year was one of Tencent’s most difficult years since its inception in 1998, with earnings hit by headwinds from regulatory crackdowns and measures to contain the spread of COVID-19.

Highlighting such tensions, founder Pony Ma at last December’s year-end conference lashed out at senior management for not working hard, prompting the company to focus on short videos for future growth. He said he needed to, showing a rare expression of frustration.

Several tech companies, including Meta, and Google have announced job cuts to cut costs amid growing fears of a global recession.

Pico, the virtual reality (VR) headset maker owned by Chinese TikTok developer ByteDance, said it would lay off a handful of employees on Friday after local media reported earlier this week that it had begun laying off hundreds of jobs. Announced. A source familiar with the matter said 200 staff were affected.

(Reporting by Josh Ye, Writing by Brenda Goh, Editing by Sam Holmes and Sharon Singleton)

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