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Tencent Abandons Plans For VR Hardware As Its Bet On The Metaverse Fails: Reuters

Tencent Abandons Plans For VR Hardware As Its Bet On The Metaverse Fails: Reuters
According to three sources familiar with the situation, Tencent Holdings is giving up on its plans to enter the virtual reality hardware market as a dim economic outlook forces the Chinese tech giant to reduce spending and staffing at its metaverse division.
At a "extended reality" XR unit it launched in June of last year, the largest video game publisher in the world had ambitious plans to develop both virtual reality software and hardware. For this unit, it hired nearly 300 people.
It had developed a concept for a hand-held game controller that resembled a ring, but according to two of the sources, challenges in achieving quick profitability and the significant investment required to produce a competitive product were among the factors that led to a change in direction.
According to one of the sources, an internal forecast predicted that the XR project would not turn a profit until 2027. According to the second source, the device lacked both promising games and non-gaming applications.
"Under the company's new strategy as a whole, it no longer quite fit in," the first source said.
Tencent also had plans to acquire Black Shark, a manufacturer of gaming phones, earlier in the year. Tencent believed that Black Shark had supply chain and inventory expertise that could strengthen its hardware push and add 1,000 people to the division.
However, it ultimately backed out of that agreement because of Tencent's strategy change, increasing regulatory scrutiny, and an anticipated protracted review process, according to one of the sources with direct knowledge of the situation.
The sources confirmed a Thursday report from Chinese tech news outlet 36Kr, claiming that Tencent had advised the majority of the unit's staff to look for other opportunities.
Regarding the Black Shark deal and whether Beijing's scrutiny had soured the deal, Tencent declined to comment. The company cited a statement it made to Reuters on Thursday in response to a question about the status of the XR unit, in which it stated that it was restructuring some business teams as a result of altered hardware development plans.
On Thursday, the business added that it was keeping the XR unit intact.
Following the Reuters report, Tencent shares fell as much as 2.5%.
Tencent, which is primarily known for software that includes a suite of games and social media applications, made a rare foray into hardware with the launch of the XR unit, which coincided with growing global interest in the metaverse concept of virtual worlds. It also entered a competition with Western rivals like Meta Platforms and Microsoft, who are creating their own metaverses and working on hardware for virtual reality.
One of the sources claimed that Tencent briefly experimented with virtual reality around seven years ago and that its interest in the field was rekindled in 2021 as a result of learning about new advancements in pancake lenses and more potent displays. Strong sales of the Meta's Quest headset served as another motivator, the source continued.
However, Tencent had one of its most difficult years since its founding in 1998 as a result of regulatory pressure and obstacles brought on by efforts to contain the COVID-19 virus.
In a rare display of annoyance at a year-end meeting in December, its founder Pony Ma criticized senior managers for not working hard enough and said the company needed to concentrate on short video for future growth, underscoring such tensions.
As concerns about a global recession have grown, several tech companies, including Meta and Google, have announced layoffs in an effort to reduce costs.
After local media reported the beginning of hundreds of layoffs earlier this week, Pico, a virtual reality (VR) headset manufacturer owned by TikTok's Chinese developer ByteDance, announced on Friday that it was laying off a small number of staff members. A source with knowledge of the situation said 200 employees were impacted.

Christopher J. Mitchell

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