Tencent Holdings, the Chinese tech giant and the world’s largest video game publisher are abandoning plans to enter the virtual reality hardware market due to financial pressures and reduced economic expectations. The company has reportedly been cutting costs and headcount at its metaverse unit, which it launched last year with plans to build both virtual reality software and hardware through an “extended reality” (XR) unit. The XR unit hired nearly 300 people, but Tencent has decided to abandon its hardware push due to difficulties in achieving profitability and the high costs involved in producing a competitive product.
One concept that Tencent had been exploring was the development of a ring-like handheld game controller. However, sources report that this concept was abandoned due to concerns about the long timeframe for profitability and the large investment required. According to an internal forecast, the XR project was not expected to become profitable until 2027, leading to a shift away from the hardware strategy. One source stated that the XR project “no longer quite fit in” with the company’s new overall strategy.
Earlier this year, Tencent had also planned to acquire gaming phone maker Black Shark, which would have added 1,000 people to the hardware unit. However, the company eventually walked away from the deal due to a shift in strategy and concerns about regulatory scrutiny and a lengthy review process.
As a result of the changes, most of the XR unit’s staff have been advised to seek other opportunities. Tencent declined to comment on the Black Shark deal and regulatory concerns. However, the company stated in a Reuters report on Thursday that it was making adjustments to some business teams as development plans for hardware had changed.
