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Exclusive: Tencent scraps plans for VR hardware as metaverse bet falters – sources

As reported by three sources with knowledge of the matter, Tencent Holdings has chosen to abandon its aspirations to enter the virtual reality hardware industry due to the company’s pessimistic economic outlook.

The largest video game publisher in the world established a “extended reality” XR branch in June of last year with the intention of creating both virtual reality software and hardware. In all, some 300 people were hired specifically for this unit.

It had created a hexagonally hand-held game controller prototype, but two of the people involved claim that difficulties in achieving early profitability and the high cost of creating a competitive product were among the factors that ultimately led to a pivot.

An internal prognosis, so claims one of the people, has the XR project losing money until 2027. The second report stated that the device did not have any useful applications or games.

The sources were unwilling to be identified due to the sensitive nature of the information they provided.

According to the first source, it “no longer completely fit in” with the new general direction of the corporation.

Earlier in the year, Tencent planned to purchase Black Shark, a manufacturer of gaming phones. Black Shark’s knowledge of the supply chain and inventory was seen as a way for Tencent to bolster its hardware push and bring in an additional one thousand employees.

One of the people familiar with the matter stated that Tencent’s strategic shift, increased regulatory scrutiny, and the expected length of the review process led to the company’s decision to pull out of the arrangement.

The sources backed up a claim made by Chinese tech news portal 36Kr on Thursday, stating that Tencent had reportedly told the majority of the unit’s workers to explore alternative options.

When asked if Beijing’s investigation of the Black Shark purchase had soured the arrangement, Tencent remained silent. In answer to an inquiry regarding the XR unit’s current position, the company pointed to a statement it sent to Reuters on Thursday, in which it said it was restructuring several business teams due to changed plans for hardware development.

The company said on Thursday that it will be maintaining the XR division.

In the wake of the Reuters piece, Tencent shares dropped by as much as 2.5%.

Metaverse interest

With the release of the XR unit, Tencent, a company more known for its software products like games and social media apps, made a rare foray into hardware at a time when there is rising global interest in the concept of metaverse virtual worlds.

Western competitors Meta Platforms (META.O) and Microsoft (MSFT.O) are developing their own metaverses and producing VR technology, so it had to compete with them as well.

An insider has said that Tencent dabbled in virtual reality around seven years ago, but that the company’s interest in the sector was reignited in 2021 after it learned about improvements in pancake lenses and powerful displays. According to the same source, the headset’s success in the market was also a factor.

However, due to regulatory pressure and restrictions brought about by efforts to manage the COVID-19 virus, Tencent experienced one of its most difficult years since its founding in 1998.

At the firm’s year-end meeting in December, Pony Ma, the company’s founder, displayed unusual anger by criticizing senior management for not working hard enough and stating that the company needs to focus on short video for future growth.

Some IT companies, including Meta and Google, have announced layoffs as global economic uncertainty has increased and the need to cut costs has become more pressing.

While news outlets in the region have been reporting hundreds of layoffs since the beginning of the week, TikTok’s Chinese developer, ByteDance, which owns VR headset maker Pico, stated on Friday that it will be laying off a smaller number of employees. According to a source familiar with the matter, 200 workers were affected.

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About MahKa

Exclusive: Tencent scraps plans for VR hardware as metaverse bet falters - sourcesMahKa loves exploring the decentralized world. She writes about NFTs, the metaverse, Web3 and similar topics.

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