ByteDance-owned virtual reality (VR) company, Pico, is set to implement significant restructuring, marking its most substantial transformation since being acquired by the TikTok parent company two years ago. This strategic move comes in response to a recent dip in global demand for VR headsets, as confirmed by three insiders with direct knowledge of the matter.

During an internal meeting held on Tuesday, Pico communicated its decision to retain its hardware team, while integrating a substantial portion of its software team back into ByteDance’s in-house product development division. The sources, requesting anonymity due to confidentiality, did not specify the exact number of jobs to be affected, but estimated that “hundreds” of Pico staff members across the globe could be impacted.

In response to inquiries, Pico issued a statement acknowledging the restructuring effort, emphasizing a renewed focus on hardware and core technologies. However, the company refrained from commenting on potential job cuts.

The reorganization marks a setback for ByteDance, as its high-profile acquisition of Pico in 2021, which valued the VR entity at over $1 billion, was initially viewed as a direct challenge to Meta Platforms’ popular Quest line of VR headsets.

Unfortunately, the demand for VR technology has experienced a downturn this year. Data from research firm IDC, up to June 30, indicates consecutive quarterly declines in shipments of augmented reality (AR) and VR headsets, with volumes plummeting by 44.6% year-on-year in the second quarter.

Since joining forces with ByteDance, Pico had aggressively expanded its footprint both within China and on a global scale. Domestically, it has emerged as the leading VR producer in terms of total shipments, while internationally it trails only Meta.

However, two insiders revealed that ByteDance had scaled back efforts to establish Pico as a distinct brand in recent months, a move reflective of the subdued market outlook. Additionally, several senior managers have departed Pico over the course of this year.

Regarding the shift in Pico’s strategic priority within ByteDance and the accompanying alterations in senior personnel, ByteDance declined to provide specific comments. Last month, ByteDance reassured its long-term commitment to the VR industry, following media speculation suggesting a gradual wind-down of Pico’s operations.