(Yicai Global) Oct. 10 -- Tencent Holdings has scrapped plans to buy Blackshark Technologies, China’s leading maker of gaming phones, as it decided to compensate for its shortcomings in the hardware field by hiking investment in software and technologies instead, an insider at the Chinese tech giant told Yicai Global.

Tencent invested in Xiaomi-backed Blackshark, but the phonemaker did not use all the money in research and development, a person close to Tencent said to Yicai Global, adding that the company also gave up on the deal because of the strict supervision on acquisitions by internet firms.

In January, Tencent was rumored to buy Blackshark for CNY2.6 billion (USD362 million). After the acquisition, the Nanchang-based startup, which sells phones under the Black Shark brand, was supposed to merge into the business group led by Ren Yuxin, chief operating officer at Tencent, and start producing VR devices.

Tencent will not focus too much on hardware for now but on its products and software capabilities, said Wan Chao, vice president of Tencent Cloud and head of the digital twin business.

The two companies have not yet responded to the news, but another source claimed that Blackshark has already started a layoff in several business departments, especially the virtual reality business, because of the withdrawal of Tencent from the deal.

Industry giants have started to speed up business positioning in software and hardware, though there are no mature metaverse technologies yet.

ByteDance Technology acquired Pico in August last year, investing a lot in the VR firm, multiplying capital input in it over the past year, and sending engineers there, Yang Zhenyuan, vice president of ByteDance, once said.

Editor: Shi Yi, Futura Costaglione