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Zoom Video Continues Its Hardware Push

By Evan Niu, CFA – Jul 16, 2020 at 8:30AM

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The videoconferencing company is increasingly integrating its service with third-party hardware.

Shortly after introducing a hardware-as-a-service (HaaS) program for the enterprise earlier this month, Zoom Video Communications (ZM -1.18%) continued its push into hardware this week by announcing Zoom for Home. The company partnered with DTEN, a maker of videoconferencing products, to incorporate the offering into a gadget that was recently announced, the DTEN ME.

Here's what Zoom investors need to know about the product.

DTEN ME on a desk

DTEN ME. Image source: DTEN.

The first Zoom for Home product

Announced last month, the DTEN ME integrates with Zoom for Home and features a 27-inch 1080p touchscreen and includes three wide-angle cameras, as well as an eight-microphone array. It looks like an all-in-one computer but runs a proprietary DTEN operating system. When initially unveiled, the $599 DTEN ME already supported integration with Zoom, but the product will now be co-branded as "Zoom for Home - DTEN ME" under the new partnership. It is expected to ship next month.

Zoom for Home allows existing customers (and free users) to login to the device without having to purchase additional licenses, while offering collaboration and personalization tools. The Zoom for Home - DTEN ME can be managed remotely by a company's IT department. The idea is to offer workers a dedicated device they can use to video call and collaborate while working remotely from home.

"After experiencing remote work ourselves for the past several months, it was clear that we needed to innovate a new category dedicated to remote workers," Zoom CEO Eric Yuan said in a statement. "I'm so proud of the team for continuing to think outside the box and prove why Zoom is the best unified communications platform that can meet the needs of all types of users."

Hardware is hard

Expanding into hardware is often a tough proposition, particularly for software companies that already enjoy higher margins. The good news here is that Zoom isn't undertaking any hardware operations itself (such as design or manufacturing).

Similar to the HaaS announcement, Zoom is mostly just providing the software and services that integrate with hardware products made by third-party manufacturers, freeing it from the low-margin hassles typically associated with hardware businesses. DTEN is also a hardware partner for Zoom HaaS, which offers phones and other gear to set up videoconference rooms.

Zoom invested $3 million in an unnamed small, private video communications hardware company, according to regulatory filings, and followed that up with another $8 million investment last fiscal quarter. The company has recognized a $2.5 million gain on that investment thus far.

Zoom has been among the most visible beneficiaries of the broad shift to remote work that COVID-19 has catalyzed, causing the stock to nearly quadruple year to date. Zoom's market cap has now topped $70 billion and shares trade at over 90 times sales, a lofty valuation even for the high-flying tech sector.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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