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Technology

Zoom expands R&D in India and US to offset geopolitical risks

Videoconference company's Q2 revenue jumps 355% on year

San Jose, California-based Zoom halted direct sales of products to users in mainland China in August.   © Reuters

PALO ALTO, U.S. -- Zoom, the videoconferencing service provider, has expanded its engineering facilities in India and the U.S. as part of its efforts to reduce dependence on its China-based research and development team amid rising tensions between Washington and Beijing.

The company reported another record quarterly results on Monday, as the coronavirus pandemic drives strong demand for remote-working tools. For the three months ended July, Zoom's quarterly revenue grew 355% on the year to $663.5 million. Asia-Pacific, which accounts for 12.3% of Zoom's total sales, generated $81.4 million in revenue, more than sixfold the number last year.

The positive earnings result sent Zoom's shares more than 20% higher in after-hours trading on Monday.

However, it is not all good news for the Nasdaq-listed company. Founded in 2011 by Chinese-born engineer Eric Yuan, Zoom has come under scrutiny in the U.S. for its links with China, as well as over security issues after Zoom admitted it had mistakenly routed some American users' data through servers in mainland China.

In response, Zoom has rolled out a series of initiatives to improve its privacy and security features and is trying to distance itself from Beijing. In August, the company stopped selling new or upgraded products directly to customers in mainland China, a few months after it halted service to individual users in the country.

"Revenue wise, China is very small," Yuan said in the earnings call Monday, adding that halting direct sales there had "no impact."

However, the company's R&D team is still "largely" based in China, according to Zoom's latest regulatory filing, which means it continues to be subject to the risks posed by the rising geopolitical tensions between the two superpowers.

"We don't have any current plans to move our engineering talent out of China. We are focusing on diversifying by adding talent in the U.S. and India," said Zoom CFO Kelly Steckelberg, adding that diversifying the talent base is to make sure "if there were something were to change, there would be no immediate impact on our service or our ability to provide services to our customers."

In July, the company opened a new technology center in Bangalore, adding to its existing offices in Mumbai and Hyderabad in India. It also recently set up two new R&D centers in the U.S.: one in greater Phoenix, Arizona, and one in Pittsburgh, Pennsylvania.

While the impact is minimal now, Zoom executives acknowledged that the U.S.-China conflict could hurt the company's profit at some point.

"There could be a potential impact on the margins as we would, you know, need to replace those talents [in China] somewhere else potentially," Steckelberg said.

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