Tencent scraps plans for VR hardware as metaverse bet falters

Tencent Holdings is abandoning plans to venture into virtual reality hardware, as a sobering economic outlook prompts the Chinese tech giant to cut costs and headcount at its metaverse unit, three sources familiar with the matter said. The world’s largest video game publisher had ambitious plans to build both virtual reality software and hardware at an “extended reality” XR unit it launched in June last year, for which it hired nearly 300 people. It had come up with a concept for a ring-like hand-held game controller, but difficulties in achieving quick profitability and the large investment needed to produce a competitive product were among factors that prompted a shift away from that strategy, two of the sources said. One of the sources said the XR project was not expected to become profitable until 2027, according to an internal forecast. The second source said the unit also had a lack of promising games and non-gaming applications.

The sources declined to be named as the information is confidential. “Under the company’s new strategy as a whole, it no longer quite fit in,” the first source said. Earlier in the year, Tencent had also planned to buy gaming phone maker Black Shark, which it believed had supply chain and inventory experience that could beef up its hardware push and add 1,000 people to the unit.

However, it eventually walked away from that deal due to Tencent’s shift in strategy, as well as mounting regulatory scrutiny and an expected lengthy review process, one of the sources who had direct knowledge of the matter said.

The sources said that Tencent had advised most of the unit’s staff to seek other opportunities, confirming a Thursday report from Chinese tech news outlet 36Kr.

Tencent declined to comment on the Black Shark deal and whether Beijing’s scrutiny had soured the deal. Regarding the status of the XR unit, the company referred to a statement to Reuters on Thursday that said it was making adjustments to some business teams as development plans for hardware had changed.

The company also said on Thursday that it was not disbanding the XR unit. Asiaone