news/GOOGL/2023.02.17/Tencent scraps plans for VR hardware as metaverse bet falters - sources.txt

HONG KONG, Feb 17 (Reuters) - 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.Tencent shares slipped as much as 2.5% after Reuters'
report.METAVERSE INTERESTThe launch of the XR unit came amid swelling global interest
in the metaverse concept of virtual worlds and had marked a rare
foray into hardware for Tencent, which is mostly known for
software that includes a suite of games and social media
applications.It also entered into a race against Western peers such as
Meta Platforms and Microsoft, which are
building their own metaverses and have their own virtual reality
hardware projects.One of the sources said that Tencent had dabbled in virtual
reality about seven years ago for a short while, and its
interest in the area had been revived in 2021 after learning of
new breakthroughs in pancake lenses and more powerful displays.
Strong sales of Meta's Quest headset was also a driver, the
person added.But last year marked one of the toughest years for Tencent
since its founding in 1998, with revenue battered by a
regulatory crackdown and headwinds from measures to stop the
spread of COVID-19.Underlining such strains, its founder Pony Ma in December
displayed a rare show of frustration at a year-end meeting when
he lambasted senior managers for not working hard enough and
said the company needed to focus on short video for future
growth.Several tech companies include Meta and Google have
announced layoffs as they seek to trim costs amid rising fears
of a global recession.Pico, a virtual reality (VR) headset manufacturer owned by
TikTok's Chinese developer ByteDance, said on Friday it was
laying off a small number of people, after local media reported
the start of hundreds of redundancies earlier this week. 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)