Reuters reported that Tencent Holdings is  abandoning plans to venture into virtual reality hardware, as a sobering economic outlook prompts the Chinese tech giant to cut cost and headcount at its metaverse unit, three sources familiar with the matter said.

According to Reuters, the world’s largest video game publisher had ambitions 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.

This news comes after Reuters reported that Tencent Holdings said on Thursday it was making some personnel adjustments after a media report said that the Chinese tech company was laying off staff in its recently formed “extended reality” (XR) business.

According to Reuters, Chinese tech outlet 36Kr reported on Thursday, citing unnamed sources, that Tencent had notified the unit’s more than 300 staff that they would be given two months to find new internal or external opportunities and that the unit would be disbanded.

Tencent, Asia’s biggest internet company, told Reuters that it was untrue that it planned to disband the business. It said it was making adjustments to some business teams as its development plans for hardware had changed.

Technode reported that Tencent is the latest tech company overhaul its metaverse-related activity, a move that comes less than a year the company established its XR unit and follows its failed attempts to acquire AR hardware maker PICO and gaming phone maker Black Shark.

According to Technode, HR 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.

It is unclear to me exactly why Tencent decided to drop its virtual reality software. Reuters mentioned a some reasons that could, potentially, be part of the reason. Another possibility is that Tencent didn’t have the money to put into their XR project, or to compete with Meta’s Metaverse.