logo-loader
Amazon.com

Space is the place... for capitalism

Are the billionaires battling it out in the 21st Century space race going to generate untold riches for their backers and send existing industries down a black hole?

Earth from space
Amazon’s Kuiper plan is for a 3,236-strong LEO satellite network designed to serve around 95% of the world's population and make the retailer a global internet service provider

A hundred years ago, John D. Rockefeller and Andrew Carnegie wrestled their way to become the two richest people in the known universe by harnessing new technologies in oil drilling and steel manufacturing. Now, Jeff Bezos and Elon Musk are part of a new generation of capitalists racing to invest their already huge wealth in rocket launch and satellite technology to propel themselves and their investors to further interstellar fame and fortune.

While many of the companies leading the way in the new space race are privately owned, there are many listed companies that are heavily involved in the wider industry and the repercussions for the existing satellite and communications industry is likely to be significant. 

So far in 2019, two rockets have launched that have potentially inflicted the first of a thousand mortal wounds for the current satellite industry – and that’s even before you include plans from Bezos’s Amazon.com Inc (NASDAQ:AMZN).

Best known of the new generation of space explorers is Musk’s SpaceX and its Starlink project, which aims to create a ‘constellation’ of satellites in a low orbit around the Earth designed to provide low-latency, high-bandwidth broadband services around the world — and make enough money for Musk to complete his real dream of sending humans to live on Mars.

Two weeks ago, via its Falcon 9 rocket, SpaceX launched the first 60 Starlink satellites and said it has the funding in place to build and launch enough satellites to begin using a network that it eventually foresees will number 11,943 satellites. 

Technology and manufacturing innovation

This is just one small step for the new breed of space racers as part of a giant technological leap that has not only excited public attention but also allowed them to get the jump on their old-school rivals - the simple concept of lowering costs. 

By standing on the shoulders of giants to make the most of the technology and expertise developed over several decades by state-funded research at NASA, the European Space Agency and Russia’s Roscosmos, SpaceX and others have also harnessed new manufacturing ideas and a modern recycling ethic. 

For example, the expense of thrusting a satellite weighing anything from six tonnes up to 11 tonnes into space are vast, so the ability of rocket companies such as SpaceX and Bezos’ Blue Origin to reuse their rockets again and again means they can reduce costs considerably. SpaceX was offering a launch discount of 40% compared to incumbents. 

The design of satellites themselves has also slimmed down costs. 

Low-earth orbit (LEO) microsatellites – such as the 10cm square CubeSats developed by NASA – are allowing the creation of low-earth orbit ‘mega-constellations’ to provide wide coverage above the planet.

Built on assembly lines using mass-produced parts, these LEO satellites have a shorter lifespan but are a thousandth of the weight of a traditional satellite. Not only does their size mean many more can be launched at once, their cost at around US$1mln is a fraction of the US$220-$250mln Inmarsat paid for just one of its GlobalXpress satellites.

Starlink’s flat-panel design, for example, ensured each satellite weighed approximately 227kg, allowing SpaceX to take full advantage of its rocket’s capacity.

Bezos, Musk …and Wyler?

Although currently playing catch-up with Musk’s SpaceX, Bezos’ has two irons in the space fire and the funds to make them reality. 

As well as his private Blue Origin side project, regulatory filings recently revealed Amazon’s Project Kuiper plans, named after the Kuiper Belt that spins around our solar system. 

Amazon’s Kuiper plan for a 3,236-strong LEO satellite network is designed to serve around 95% of the world's population and make the retailer a global internet service provider.

“There are billions of people around the world who lack access to broadband internet. Our vision is to provide low-latency, high-speed broadband connectivity to many of these unserved and underserved communities around the world,” Amazon said. 

However, this is a long-term project and is expected to take many years. 

Challenging this high-profile, low-orbit pair is US- and UK-based OneWeb, a start-up that in February launched the first of 600 LEO satellites that will begin providing high-speed internet access by 2021.

That same month OneWeb, which was founded by industry veteran Greg Wyler, raised $1.25bn from investors including WeWork backer SoftBank to take its total funding close to $3.5bn. 

Fuelled by this cash injection and a manufacturing joint venture with Airbus SE (EPA:AIR), OneWeb targets the launch of 30 satellites per rocket by the end of this year.

This trio are far from lost in space, as more than 600 companies have drummed up around almost US$18bn in investment in eight years, according to data from Northern Sky, of which US$7bn of that was raised in the past two years.

Earth-bound rivals?

In the medium term, this mushrooming of new industry entrants has weighed on sentiment around the incumbent satellite industry players, most of which are less fleet of foot than these newcomers. 

The cheap bulk supply of capacity, for example, has rendered legacy satellites increasingly obsolete, with the decline in satellite capacity prices having accelerated over the past year, with a global average decline of 18%, Northern Sky recently revealed. 

Amid such issues, the likes of London-listed Inmarsat Plc (LON:ISAT) and France’s Eutelsat Communications SA (EPA:ETL) have struggled.

Inmarsat is being taken private after a frustrating ups-and-downs in recent years, with a similar ride for Luxembourg-headquartered SES SA (EPA:SESG) and Eutelsat, though smaller UK rival Avanti Communications Group plc (LON:AVN) has seen its share price fall to earth like one of Musk’s reusable rockets under the heavy load of its debts. 

Others have weathered the shifting sands to rally in the past year or so, with US-based Intelsat SA (NYSE:I) and Iridium Communications Inc (NASDAQ:IRDM). 

Interstellar investment returns?

For those which can dodge the financial asteroids, analysts see opportunities for returns of 10-times and greater in the long-term.

While relatively small markets today, Goldman Sachs has flagged up to its clients that the lowering barriers to participation in the space economy from falling costs will make new industries like space tourism, asteroid mining, and on-orbit manufacturing viable in the more distant future. 

“We believe space mining is still a long way from commercial viability, but it has the potential to further ease access to space and facilitate an in-space manufacturing economy,” Goldman analysts said in 2017, noting estimates for around $25-50bn worth of platinum that could be harvested from a single asteroid. 

Analysts at Morgan Stanley have also seen the potential for huge structural change that some recent technological developments could bring, seeing parallels with Elisha Otis’s 1854 demonstration of the first “safety elevator” that seemed insignificant to the public at the time but 20 years later saw every multistory building in New York, Boston, and Chicago constructed around a central elevator shaft.

Reusable rocket technology may provide a similar turning point, suggest Morgan Stanley analysts. “We think of reusable rockets as an elevator to low Earth orbit (LEO),” they said. “Just as further innovation in elevator construction was required before today's skyscrapers could dot the skyline, so too will opportunities in space mature because of access and falling launch costs.”

Morgan Stanley last year estimated that the global space industry could generate revenue of $1.1trn or more in 2040, up from $350bn currently. 

The investment bank sees the most significant short- and medium-term opportunities in satellite broadband internet access, estimating that satellite broadband will represent 50%-70% of the projected growth of the global space economy by 2040, with lower cost satellites helping to drive down the cost of data just as demand for that data explodes.

“The demand for data is growing at an exponential rate, while the cost of access to space (and, by extension, data) is falling by orders of magnitude," the analysts said. 

“We believe the largest opportunity comes from providing internet access to under- and unserved parts of the world, but there also is going to be increased demand for bandwidth from autonomous cars, the Internet of things, artificial intelligence, virtual reality, and video.”

Investing for the future and the present

While many of the new satellite companies are privately owned, they are worth tracking ahead of potential IPOs and there are companies that provide products or services to the industry or are in joint ventures, such as Airbus’s manufacture of LEOs with OneWeb that claims to be able to turn out four satellites per day. 

US-listed Iridium Communications Inc (NASDAQ:IRDM) claims to have been “in LEO before LEO was cool” and has spent US$3bn refreshing its satellite fleet with its Iridium Next constellation of 66 small, interconnected mobile satellites that it says will offer coverage to 100% of the planet’s surface.

Questioning the cost-benefit of LEO deployment, European rival SES has been pushing the advantages of medium-Earth orbit (MEO) satellites as it says it can provide connectivity to around 3bn people currently without the internet from just the launch of the first seven super-powered MEO satellites in 2021. 

Boeing is the maker of the MEO satellites, which it says will employ its most-advanced digital technology and can be launched up to four at a time in a stacked configuration. 

Thales SA (EPA:HO) claims to be able to make LEO satellites, while Lockheed Martin Corporation (NYSE:LMT) has refreshed its production line to make it more flexible and is already enjoying growing revenues at its Space Systems arm, while Eutelsat is only just trialling its own LEOs. 

New York-listed STMicroelectronics NV (NASDAQ:STM), which is the primary supplier of phase array antenna for the receiving stations that the satellites will beam their signals down offers another space angle. At a recent capital markets day, STM said antenna for LEO satellites are one of its programs that are expected to ramp up in the second half of the year and beyond. 

Analysts at Liberum commented: “While there are concerns on STM regarding its exposure to Huawei and the smartphone segment, we believe the company's overall exposure is very broad and it is likely to see strong growth into H2'19 and beyond on the back of these broad programs.”

Quick facts: Amazon.com

Price: $1.79 k

Market: NASDAQ
Market Cap: $886.71 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Full interview: Arcadia Biosciences makes major progress on its hemp venture...

Arcadia Biosciences Inc (NASDAQ:RKDA) CEO Raj Ketkar tells Proactive the California-based company expects to “significantly scale revenues in 2020” as it reported financial and business results for the second quarter and first half of 2019. Ketkar says the agricultural innovation company made...

2 days ago

9 min read