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US game engine Unity in talks to spin off China unit

August 3, 2022 11:30 pm

Unity Technologies is in talks to spin off its China unit to help it expand in the world's largest gaming market, Reuters reported on Tuesday, citing people familiar with the matter. The game development platform has sought strategic investors to join its more than $1 billion business during talks, the sources said.

The San Francisco-based firm, which entered China in 2012, powers many of the country's most popular games such as "Honor of Kings" from gaming leader Tencent and miHoYo's "Genshin Impact" through its game engine software Unity.

According to two of the sources, Unity’s decision to spin off the unit is driven by the desire to “see its software used more extensively in China in areas as varied as smart city modeling to industrial design, as well as in the metaverse.”

With China tightening data handling regulations, Unity believes a spin-off would aid 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 attraction to local government and state-owned partners, the source said.

Last month, Unity China CEO Zhang Junbo revealed the company's expansion plans in China to local tech media 36Kr, saying that the Chinese market is large enough and has many differences from other markets, and that Unity is exploring ways to make its technology "safe and controllable" to keep up with the evolvement of this market.

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

China is the biggest gaming market in the world, yet it still contributes less money for Unity than the US market does. The company generated $40 million, $64 million, and $110 million, in 2018 through 2022, respectively, from the Greater China region. On the other hand, the US division posted $114 million, $151 million and $195 million over the same period, according to Statista. 

Shares of Unity have fallen 80% since their November 2021 high amid inflation-fueled weakness in US tech stocks.