Smallsat industry faces new challenges to growth
MOUNTAIN VIEW, Calif. — The small satellite field, which has enjoyed significant growth and investment in the last few years, will face new challenges this year demonstrating their business plans, with some expecting a shakeout in some parts of the sector.
During a panel discussion at the SmallSat Symposium here Feb. 5, industry officials expressed general optimism about the field even while cautioning that some sectors, like small launch vehicles and some classes of smallsat constellations, could run into headwinds.
“This is the year where companies will prove themselves or not, and inevitably, I think, we are going to see some failures associated with companies that maybe looked as if they were on a path to success,” said Carissa Christensen, chief executive of Bryce Space and Technology.
Those failures should not be surprising. “That is not an indictment of this set of business ventures. That’s part of the normal process of this kind of business,” she said. However, she warned that such failures could be treated with greater concern by more risk-averse government agencies. “That’s important because those government customers are critical anchor customers for some of those businesses.”
Some sectors of the industry are more likely to see failures and a shakeout than others. “If you take launchers, there are a lot of companies coming, so how do you differentiate yourself?” said Emmanuel Sauzay, director of commercial space at Airbus Defence and Space. “Same for IoT [Internet of Things] businesses. There are a lot of ventures in the world right now doing IoT from space and how they differentiate themselves is not easy.”
Christensen agreed that there is an unsustainable number of small launch vehicle ventures. “I think we are wildly oversupplied with launch concepts and capabilities at this time, given any reasonable forecast for future demand,” she said. “So, particularly on the small launcher side, we going to see some shakeouts there.”
Broadband satellite constellations, though, may take longer to identify winning and losing ventures. “I think we’ll get more clarity on business direction” in the next year, Christensen said. “I don’t think we’re going to see any of those companies fully drop out. I think we’ll see them move forward more or less.”
A shakeout, though, will inevitably come, Sauzay argued. “We can imagine there will be one, two, or a maximum of three companies that are sustainable in the long term,” he said. “The key moment is when we see there is a market for them. I think 2019 will be too early.”
Investment in the industry, which has been growing in recent years, may level off in 2019. “I think there is a little bit of stepping back at the moment and just seeing what happens,” said Stuart Martin, chief executive of Satellite Applications Catapult in the U.K. “I think we’re probably going to stay about level.”
“I think it will be probably about the same, but there is an opportunity for a rationalization,” said Melissa Farrell, vice president of commercial programs at Stellar Solutions. That could include increased merger and acquisition activity.
Sauzay said a key factor will be whether investors follow up on initial seed and Series A round investments as startups seek new, larger rounds. “For me, this will depend partly on the success of the icons of the NewSpace industry, like Planet, Spire, OneWeb and others,” he said. “If so, I think it will lead investors to make more investment this year.”
A wild card, though, could be larger events, like the potential for the economy to go into recession or uncertainty about the U.K.’s impending exit from the European Union. “It has a broader economic impact because it slows everything down,” Martin said of the effect of a recession on the industry.
He added that, for now, Brexit has not been a concern for the space industry in Britain. “There are plenty of people who see opportunities in Brexit.”
In an audience poll, “sound business models” was considered by far the biggest challenge facing the industry this year, versus launch, regulatory, or other issues. Panelists agreed.
“When you’re looking at a crowded, increasing market, particularly in the launch side, differentiation is critical,” Farrell said. “The ability to develop and nurture a niche that is growing, and the ability to be agile around changing market conditions, are going to be what sorts the winners from the losers in a difficult market.”