The space and satellite industry got back together in person at SATELLITE 2021 with a lot to discuss, as progress has not slowed down since March 2020. This year, topics like ground station standardization, vertical integration, and consolidation drove conversations. Here are NSR’s 10 takeaways from the show:
Supply Chain Constraints Loom
It is not a surprise that executives at various panels hinted at supply chain challenges as a looming constraint. While the challenge seems to be more concerning for satellite manufacturers, the ripple effect cascades down to the rest of the industry, affecting satellite launch schedules and program commercialization timelines. During the finance roundtable, even investors alluded to the growing concern of supply issues and how viable optionalities have become a moat.
This concern raises a subtle reminder that the space industry supply chain does not function in isolation. The space market is susceptible to the same shortage of microchips and other rare components that has struck other manufacturing sectors, including the automobile, telecoms, etc. The challenge is further heightened by the exponential growth in new satellite orders ranging from new Low-Earth Orbit (LEO) constellation projects to increased demands for sophisticated Geostationary Orbit (GEO) and microGEO satellites.
Constellations: Stable Cash Flow Over Profitability
Constellations have been the industry's top trending topic over the past three SATELLITE editions — it was no different in 2021. However, what used to be discussed in future tense is now a reality, with some LEO constellation operators already deploying a significant number of their first tranche and readying for full commercialization.
As expected, the industry is moving from the novelty of some constellation ideas to asking fundamental questions concerning the long-term viability of the business case. Top on the list of the constellation questions is the path to profitability and guidance on the return on investment. The response from constellation operators suggests that the immediate concern is maintaining a stable cash flow to stay afloat long enough to gain market dominance — more like burn through the cash to gain market dominance and worry about profitability later.
Meanwhile, the profitability concerns do not only apply to emerging players. Legacy GEO operators face a similar situation as they reinvest in next-generation networks at high capital expenditures and move closer to customers at the expense of EBITDA.
Vertical Integration is Becoming the Industry Norm
Vertical integration is an industry trend with wide consensus. From legacy fixed satellite operators to emerging players and ground station operators, it seems the ship has sailed from the typical wholesale capacity model. Simply owning infrastructure in space is no longer enough. Instead, startups and current market players alike are focusing on building an end-to-end customer experience, with software/service providers looking to in-house hardware manufacturing and hardware manufacturers looking increasingly at the services side of the market toward the next big business model.
One thing is clear – software will be a key unifying piece of the puzzle as services become more responsive and ‘infrastructure in space’ becomes more flexible to changing market conditions. End users will ultimately choose the winning model, but the talk of the conference was on ‘how vertical’ rather than ‘if vertical.’
Analysis Paralysis: Customers Waiting for the Hybrid Networks of the Future
The go-no-go connectivity contract situation is widespread across various industry verticals as customers wait in anticipation of what low-latency Non-GEO constellation service means for their business. From listening to executives during operator panels to walking the exhibit hall and having conversations with attendees from user sectors such as aviation, telecom, maritime, etc. — the usual questions border around what happens when LEO service is proven and becomes viable. Questions about legacy operators’ paths to non-GEO solutions spring up frequently. No wonder the mantra for a hybrid multi-orbit network seemed to be a default response for many operators.
Add SPACs to the List
With six space companies successfully debuting in the public market via special purpose acquisition companies (SPACs) in 2021 alone, it is no surprise to hear people talk about SPACs. Interestingly, SPAC discussions usually elicit mixed reactions of indifference, excitement for the optionality and skepticism for the nebulous valuation of some SPAC deals — both at the various executive panels and in coffee time whispers. However, NSR gleaned that the SPAC trend has taken root in the industry as another financing route, and a substantial number of space companies and investors are still exploring the option.
More M&A Expected
Most topics discussed during SATELLITE further stretched the notion that more mergers and acquisitions are underway in the space industry. From the supply chain constraint on the manufacturing side to the vertical integration trends on the service side, many executives allude to ongoing M&A conversations in response to the changing industry landscape. For example, on the manufacturing side, cash-rich players are locking in component suppliers and snapping up smaller players in adjacent segments to gain critical complementary intellectual properties. In addition, the M&A trend has been further accelerated by the rise of SPAC mergers, with some players getting life-long access to public capital as a fuel to pursue inorganic growth.
The Software-Defined Satellite is THE Future of GEO
The race to build Software-Defined Networks (SDNs) is the industry's current innovation catalyst. SDNs are driving changes in both space and ground systems, with software-defined satellites emerging as the standard technology in most next-gen solutions for GEO satellite operators. Ground station operators are also following the upstream trend with topics such as software virtualization with containers, cloud services, and automated operations as crucial talking points.
As with manufacturing trends software, this market shift is changing supply-chains, altering business models, and requires a new set of skills for the space workforce – less Radio Frequency (RF) engineering and more IP coding.
Don't Forget Open Standards and Interoperability
Open standards and interoperability continue to emerge as burdensome necessities in the industry. However, it appears the industry is still at the initial stages and with varying suggestions on what open standards could be acceptable. The crucial talking points border around vendor-agnostic antennas, network integrations, multi-orbit interoperability, etc. While technology constraints may have slowed efforts for open standards and interoperability, various players' appetite to open standards may have further delayed progress in the industry.
Moreover, the real questions will be around if these are vendor/value-chain driven changes or end-user demands. Will government and military markets demand some flavor of interoperability as acquisition preferences change? Does that trickle down to commercial markets? Ultimately, it seems the industry is split around how open, what is standard — and if closed hardware ecosystems count as open systems if they have APIs and other software-centric interoperability.
SSA and Collision Avoidance
Are we good stewards of the space environment? The industry is coming to terms with the rising importance of Space Situational Awareness (SSA) as various players expressed concerns about avoiding collisions in orbit. Notably, as more satellites are planned for launch to complete the first tranches of numerous constellation programs, operators show genuine concern for protecting their assets in space. However, opinions diverge on whether a central international regulatory authority should be responsible for holding all players accountable.
The emerging in-orbit services marketplace is one that came up across the spectrum of startups looking to provide services to existing players shopping around for the next-big-thing.
It was evident the industry was happy to be face to face again, even with masks required. The mixed reality of masking up, struggling to be heard, socially distanced seating (which did have the benefit of easier to navigate rooms) while seeing each other away from the computer screen gave SATELLITE 2021 an energy, from the ballrooms to sidewalks, to coffee bars, the exhibition halls, and other places surrounding the beautiful view of the Gaylord National Convention Center National.
Among the “Happy to see you!” and “Oh My! LEO is ... (Real? Disruptive? _____)”, the space and satellite sector is at an inflection point. Regardless of how you feel about standards, GEO vs. LEO, etc. show attendees are getting younger (or some of us are getting older...) and the softwareification of the space industry is here to stay. Overall, the future remains bright for the satellite industry and SATELLITE 2021 was a refreshing confirmation that the industry remains on a growth-path. VS
Joseph Ibeh consults for NSR in the areas of satellite communications, the New Space industry landscape, and national space programs in emerging regions.