Game software developer Unity in talks to split off China unit

Two sources claimed that Unity wanted strategic investors to join a company worth more than $1 billion

Two sources claimed that Unity wanted strategic investors to join a company worth more than $1 billion

Unity Software Inc, the US developer best known for software used to design video games, is in talks to spun off its Chinese unit to help it expand into the world’s largest game market, four people knowledgeable about the game said. case to Reuters.

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San Francisco-based Unity has sought strategic investors to join a company worth more than $1 billion during talks, said two of the people, who declined to be identified because they were not authorized to speak publicly. to discuss the issue.

Unity declined to comment. The share price closed more than 5% on the news Tuesday.

The talks come as tense relations between China and the US exacerbate sensitivities over technology transfer and data processing across borders, forcing tech companies to reassess their operations in China. At the same time, there is a growing interest in extending game creation software to new technologies such as the so-called metaverse, an immersive three-dimensional internet.

Unity made its debut in China in 2012, and its eponymous software, known as a game engine, powers many of the country’s most popular games, such as gaming leader Tencent Holdings Ltd’s “Honour of Kings” and miHoYo’s “Genshin Impact”.

Rivals include Tencent-backed Epic Games, the US developer of the increasingly popular Unreal Engine 5.

Unity’s spin-off plan is driven by a desire to see its software used more widely in China in areas ranging from smart city modeling to industrial design, as well as in the metaverse, two of the people said. Potential investors Unity has said they have made big bets on the metaverse, they said.

As China tightens data processing regulations, Unity believes a spin-off would help this expansion, as it would give the unit more local ownership and autonomy over how it operates in the country, which could also increase its appeal to local governments and state partners. increase, the people said.

The spin-off would be one of China’s bigger technology deals this year as investment activity has slowed due to weak economic growth, COVID-19 outbreaks and tightening regulations.

Unity China Chief Executive Zhang Junbo has been working on the plan for at least a year, two people said. Progress was further slowed as Unity’s stock price fell 80% since its November 2021 high amid weakness in US technology stocks, and a product that missed performance expectations, they said.

Zhang announced Unity’s expansion ambition in China to local tech media outlet 36Kr last month without naming a spin-off, and said Unity was exploring ways to make its technology “secure and verifiable” in China. China – a reference to the government’s mandate for key technology to be controlled domestically.

He also said Unity is likely to hire more than a thousand engineers in the coming years, while expanding offices in Beijing and Guangzhou in addition to its headquarters in Shanghai.

Two of the people said Unity’s Shanghai-based employees have been asked to sign contracts with the new entity, and talks are underway about an operating budget separate from that of the parent company.

A local joint venture (JV) could help Unity “get a foothold with sensitive industries such as governments and manufacturing companies looking to modernize their operations with digital twins and real-time 3D technologies,” said Matthew Kanterman, research director at Ball. Metaverse research partners.

While forming a Chinese joint venture comes with risks – a notable example is a dispute between British chipmaker Arm and its Chinese unit – Mr Kanterman said such joint ventures have worked well for many Western tech companies, such as HP Inc and Nokia. Oyj.

“Having the right local partners can help Unity succeed where others struggle,” said Mr Kanterman.

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