On Thursday, Chinese tech giant Tencent dismissed reports claiming that it was disbanding parts of its XR team, with the Shenzhen-based company saying that it is set to change the hardware development path of its XR business by making some personnel adjustments.

Why it matters: Tencent is the latest tech company to overhaul its metaverse-related activity, a move that comes less than a year after the company established its XR unit and follows its failed attempts to acquire AR hardware maker PICO and gaming phone maker Black Shark. XR hardware usually requires large amounts of capital over a long period of time, but as Tencent continues to cut costs and focus mainly on software, the company has been more cautious with its investments.

Details: Local media outlet 36Kr first reported on Thursday that Tencent was disbanding part of its XR team, which was established in June 2022. The report said that employees in the unit would be given two months to find new opportunities inside or outside of the company. However, Tencent later dismissed the report, saying it was simply making personnel adjustments within the unit.

  • As of January 2023, there were still about 300 employees working on Tencent’s XR business, including tasks related to basic platform, content, Vision Labs, media technology, art and design, business decision, and spatial audio technology, according to 36Kr.
  • Shen Li, previously the head of Tencent’s XR project, left the company in November 2022, with part of Tencent’s XR business suspended in January, 36Kr reported. 
  • Shen, previously head of Tencent game studio NExT Studios, was one of the few people in the company’s XR unit with experience in VR hardware development, due to his work at French video game developer Ubisoft and at Epic Games before joining Tencent in 2013.
  • Sources told 36Kr that Tencent’s XR project has few employees with hardware backgrounds and that the tech giant is hesitant about developing its hardware business.
  • In early 2022, it was reported that Tencent intended to acquire gaming phone maker Black Shark, but the plan was abandoned a few months later, seemingly after the deal failed to get approval from the authorities.

Context: The global metaverse frenzy, kickstarted in 2021, caused Chinese tech firms to race to become front-line players in the sector, but lower-than-expected sales and user metrics are making them reconsider and adjust their investments.

  • Tencent’s founder Pony Ma warned all employees at the end of 2022 that any business unit within the company could be cut if it isn’t self-sustaining.
  • Pico, a Chinese VR headset maker acquired by ByteDance in 2021 and reportedly a one-time Tencent target, has also cut hundreds of jobs, with some teams reduced by as much as 30%, South China Morning Post reported on Thursday, citing two unnamed sources.
  • ByteDance rolled out new VR headsets Pico 4 and 4 Pro last September, with Pico founder and president Henry Zhou saying he expected to eventually sell more than 1 million headsets. While the TikTok owner is yet to reveal sales or shipment figures, International Data Corporation (IDC) shows Pico’s market share reached about 15% in the third quarter of 2022; Meta’s market share fell to about 75% from 90% a year ago according to IDC.
  • Microsoft ended its industrial metaverse project recently with the company reportedly shifting its focus to prioritize short-term projects instead. Redundancies at its metaverse team were part of the firm’s broader layoff of 10,000 employees announced in January, The Information reported on Feb. 9.
Cheyenne Dong

Cheyenne Dong

Cheyenne Dong is a tech reporter now based in Shanghai. She covers e-commerce and retail, blockchain, and Web3. Connect with her via e-mail: cheyenne.dong[a]technode.com.

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Jessie Wu

Jessie Wu is a tech reporter based in Shanghai. She covers consumer electronics, semiconductor, and the gaming industry for TechNode. Connect with her via e-mail: jessie.wu@technode.com.