Tencent Holdings Limited (TCEHY)

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Metaverse layoffs continue to mount as Tencent dismisses 300 employees
By: Jordan Finneseth | February 17, 2023

The metaverse continues to challenge even its most committed companies as Tencent, the tech firm behind the WeChat social media platform and China’s largest company by market cap, is reevaluating the approach to its metaverse offering and scrapping plans to launch virtual reality hardware.

According to a report from Reuters, the Chinese tech giant’s metaverse unit is now in cost-cutting mode amid worsening economic conditions and the broader struggles of the cryptocurrency ecosystem.

Tencent launched its “extended reality” XR unit in June as part of an ambitious plans to build virtual reality software and hardware, hiring 300 people to make it a reality.

The firm developed a concept for a ring-shaped handheld game controller, but issues with profitability – with internal forecasts predicting the XR project wouldn’t make money until 2027 – and the large investment required to produce a competitive product hampered its progress and prompted Tencent to alter its strategy.

A lack of promising games and non-gaming applications was also cited by one source as a reason for the shift in focus. "Under the company's new strategy as a whole, it no longer quite fit in," the source said.

All sources quoted in the Reuters story declined to be named as the information is confidential.

Tencent also had to walk away from plans to acquire gaming phone maker Black Shark, which was intended to beef up its hardware push and add 1,000 people to the unit, due to the shift in strategy and increasing regulatory scrutiny that would have required a lengthy review process.

On Thursday, Tencent confirmed that it would be making some personnel adjustments and notified the 300 staff members of the XR unit that they have been given two months to find new internal or external opportunities. The company pushed back against rumors that it was disbanding the XR unit entirely, saying that it was making adjustments to some business teams as its development plans for hardware had changed.

With this development, Tencent joins Microsoft and Facebook among the ranks of large firms that have recently shifted their metaverse strategy in the wake of economic struggles. Last Friday, Microsoft announced that it would be shutting down a team that was formed only four months ago to help customers use the metaverse in an industrial setting.

Facebook’s parent company Meta has also had to reduce its labor force as part of a cost-cutting initiative, announcing back in November that it would be laying off 13% of its workforce, or more than 11,000 employees. All sectors of the company will be affected by the layoffs, including Reality Labs, the unit responsible for developing augmented reality (AR), virtual reality (VR), and prototypes in emerging technologies such as mixed reality and brain-computer interfaces.

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