Judging by recent headlines, space is hotter than ever. Everything from the billionaire rocket race earlier in the summer to talk of colonizing Mars to the increasing private investment in the industry in China gives the impression that we’re in a true golden age of space growth.

The real picture is slightly less rosy. The total number of launched satellites is growing at a frantic trot: 3,371 satellites were in orbit at the end of 2020, a 37% year-over-year increase. But satellite manufacturing revenues are not keeping pace. According to the Satellite Industry Association’s state of the industry report, satellite manufacturing revenues were largely flat in 2020 at $12.2 billion compared to $12.5 billion in 2019. They were way down from $19.5 billion in 2018 and $15.5 billion in 2017 (Figure 1). Even the growth in the number of orbital launches is being driven largely only by China (Figure 2).

Opportunities remain for both investors and companies in the segment to continue to grow. However, investments made today may not see their promised returns, which means that it’s imperative to get involved with eyes wide open and a holistic understanding of where the real opportunities lie.

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Several new developments in the manufacturing and deployment of space technologies are responsible for lowered revenues

Increased productivity per launch vehicle: Reusable launch systems and satellites have existed for decades, but they have grown significantly in technological capability and popularity over the last few years. Expendable rockets are becoming the launch industry’s version of single-use plastic. “Rideshare” has become the rule rather than the exception, providing low-cost access to space for higher education institutions and others who don’t have NASA-level budgets. These systems are, in essence, brokers of access to space and bring the space flight price curve down. This also opens up the option of additional business cases. For example, Iridium NEXT was only feasible because of the reduced launch cost of Falcon 9.

The low Earth orbit (LEO) paradigm: Thanks to the dramatic reduction in the aforementioned launch costs and a benign radiation environment enabling the use of inexpensive terrestrial non-radiation hardened parts, many new for-profit commercial space ventures have come to fruition. Space agencies are moving away from buying hardware to buying services from commercial vendors. Ultimately, however, the end customer is still inherently institutional.

Reliability vs. performance: Historically, given the highly institutional nature of the space market and high launch costs, customers and legacy satellite manufacturers placed greater emphasis on reliability over stretching performance boundaries. Today, with a shift toward the LEO paradigm, the priority has migrated to performance and speed, and reliability is much lower on the list. Cost is merely a function of the paradigm.

Declining satellite build costs: Smallsats have become widespread, with companies dedicated to their manufacture and deployment. Leaps in technology mean that these smaller satellites can perform the remote sensing, technology development, and communications missions that could once only be performed by larger, heavier, and more expensive satellites. Spacecraft dimensions aside, changes in manufacturing techniques are also contributing to efficiencies. Technologies like 3D printing have enabled manufacturers to produce satellite parts quicker and at lower costs. Even with an increased volume of satellites – which more than trebled in the last five years – lower manufacturing costs still result in an overall revenue contraction.

Competition with terrestrial infrastructure: While there is growing interest in internet and telecommunication infrastructure offered as a service from space, commercial limitations remain. Many service offerings are still cost-prohibitive, and competition comes not just from other space players but also terrestrial companies offering these services.

Disaggregation of assets into constellations: Modular satellite hives or constellations are becoming popular as these are less likely to have a single point of failure. These hives make it easier to build redundancies into the system rather than failproof a single large spacecraft. They also allow for reductions in exquisite “space-rated” parts, making it easier and cheaper to build and test. And trends toward serial production driven by these constellations are allowing the industry to finally benefit from the economies of scale.

Expect winners and losers

The influx of private equity and venture capital has substantially changed the space landscape over the last decade. Startups researching specific technologies and smaller launch companies abound because of the available funding. Special-purpose acquisition companies, or SPACs, have further fueled new entrants into the marketplace. Much of this growth, however, can be attributed to the multiplier effect caused by the billionaire interest.

Those facing the biggest risk are companies that are not innovating, have high overhead costs, are slow to go to market and not agile, and whose price points are still at the old cost base. All of this means that investors must be diligent in assessing where to put their money. There are many options, but not all will be viable in the long run. Winners will be financially productive companies that see consistent demand for product. Factories must be able to provide low-cost, timely manufacturing as well as be able to handle a dynamic range of throughput. One way to achieve this would be to rely more on technologies and less on labor.

For those looking for a good investment, the fundamental business rules still apply. Be platform agnostic and focus on one standout application, such as GPS or space observation.