EXCLUSIVE US games software developer Unity to create Chinese unit to fuel expansion – sources

Advertising board for the fantasy game ‘Genshin Impact’ by Shanghai-based developer Mihoyo is pictured in Hong Kong, China October 20, 2020. REUTERS/Pei Li

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HONG KONG, Aug 3 (Reuters) – Unity Software Inc (UN), the U.S. developer best known for software used to design video games, is in talks to spin off its Chinese unit to help it expand into the the world’s largest games market, four of the people with knowledge of the matter told Reuters.

San Francisco-based Unity has been seeking strategic investors to join it in a venture valued at more than $1 billion in talks, two of the people said, declining to be identified because they were not authorized to speak out publicly on the issue.

Unity declined to comment.

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The talks come as strained US-China relations are heightening sensitivities around technology transfer and data processing across borders, prompting tech companies to reassess their operations in China. At the same time, there is growing interest in extending game creation software to new technologies such as the so-called Metaverse, an immersive three-dimensional Internet.

Unity entered China in 2012 and its eponymous software, known as the game engine, powers many of the country’s most popular games, such as “Honor of Kings” from gaming leader Tencent Holdings Ltd (0700.HK ) and “Genshin Impact” by miHoYo.

Rivals include Epic Games, backed by Tencent, 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 as diverse as modeling smart cities to industrial design, as well as in the metaverse, two of the people said. The potential investors Unity talked about made big bets on the Metaverse, they said.

As China tightens regulations on data processing, Unity believes a split 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 government and state-owned partners. , people said.

The spin-off is believed to be one of China’s biggest tech deals this year as investment activity has slowed due to weak economic growth, COVID-19 outbreaks and regulatory tightening.

China Unit general manager Zhang Junbo has been working on the plan for at least a year, two of the interviewees said. Progress was further slowed by Unity’s share price which has fallen 80% since its peak in November 2021 amid weakness in US tech stocks, and a product falling short of performance expectations. they stated.

Zhang revealed Unity’s China expansion ambitions last month to local tech outlet 36Kr without mentioning a spin-off, saying Unity was exploring ways to make its technology “safe and controllable” in China – a benchmark. government mandate to control important technology. domestically.

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

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

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Reporting by Josh Ye, Julie Zhu and Kane Wu in Hong Kong; Additional reporting by Josh Horwitz in Shanghai; Editing by Brenda Goh and Christopher Cushing

Our standards: The Thomson Reuters Trust Principles.

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