Reuters is reporting that Chinese tech giant Tencent Holdings will be scraping its plans to build virtual reality hardware as the uncertain economic outlook forces the company to cut its costs and headcount in its metaverse division and shift its priorities. Employees in the unit have been told to find new opportunities.

The Reuters report quotes three sources who are familiar with the matter. The company has concerns about the potential profitability of the venture and the high investment costs involved.

Tencent Holdings, the largest video publisher in the world, had lofty plans of building virtual reality hardware and software in its “extended reality” unit that it launched in mid-2022. The company hired 300 staff in the unit.

Reuters reports that the 300 staff employed at the XR unit have now been urged to find new employment opportunities.

The Reuters report cites anonymous sources who revealed that Tencent’s own internal forecasts showed that the XR venture will not be profitable until 2027. The report also states that the headset under development did not have promising games and non-gaming apps in its ecosystem.

The Reuters article suggests that the development of the headset did not progress that much. For instance, Tencent had to develop a concept for a “ring-like hand-held game controller” but the development team grappled with challenges when it comes to realizing quick profitability along with the considerable investment required to deliver a competitive product and these factors, among others, prompted Tencent to shift its strategy, according to sources.

Tencent was planning to purchase Black Shark, a gaming phone maker, early this year. Black Shark presumably had the supply chain and inventory experience that the games publisher needed to shore up its XR play and add additional 1,000 employees to the unit.

Tencent eventually shelved the deal as it shifted its strategy from VR hardware. The company was also facing increasing regulatory scrutiny from Beijing and a potentially long review process, according to Reuters‘ sources familiar with the matter.

Tencent has dabbled in virtual reality before. It also live-streamed virtual reality concerts for music artists.

The company renewed its interest in virtual reality 2021 after the development of pancake lenses that promise better displays and small form factor VR headsets. The company was also, reportedly, also encouraged by the Meta Quest sales which had shipped more than 15 million units by mid last year, according to earlier reports.

However, the latest move does not necessarily signal the end of Tencent’s VR ambitions. Tencent has stakes in Epic Games as well as in Skydance Media. The gaming division of Skydance, Skydance Interactive, is behind the title Archangel: Hellfire, The Walking Dead: Saints & Sinners, Chapter 2: Retribution as well as the upcoming action RPG Behemoth.

Tencent also took part in Skydance’s recent $400 million strategic investment round in October 2022.

Sources: Reuters

Rob GrantBusinessReuters is reporting that Chinese tech giant Tencent Holdings will be scraping its plans to build virtual reality hardware as the uncertain economic outlook forces the company to cut its costs and headcount in its metaverse division and shift its priorities. Employees in the unit have been told to...VR, Oculus Rift, and Metaverse News - Cryptocurrency, Adult, Sex, Porn, XXX