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Satellites - bad industry in general?


misterkrusty
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Every once in a while I come across a satellite-based business that sounds interesting.  But then I think, geez, do I really want to own a business with huge upfront costs (buy satellite and launch it into orbit) and all the technology risk that telecom entails?  (If Charlie Ergen isn't running it, that is.)

 

The price charts for Globalstar (GSAT), Iridium (IRDM), Asia Sat (1135.HK) don't give me much confidence either.

 

Discuss...

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There are a lot of very very smart people working on making satellites cheaper or coming up with a less expensive work around.

 

My personal favorite is Google's Project Loon and think it has the best shot of being a replacement for a lot of the functionality satellites provide.

https://www.google.com/loon/

 

Facebook is also working on its own long duration solar powered drones that serve a similar function as Google's balloons and satellites.

 

I think SpaceX has it's own miniature satellite program that it's working on as well.

 

My point is that existing satellite companies own a lot of expensive equipment, traditional satellites. Do you think they're going to be able to maintain their marketshare when Google is launching balloons for 1/10th (probably a lot less) of the cost? Perhaps though costs coming down benefits the industry as a whole and existing players can leverage their established customer base.

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What part of the value chain are you talking about?

 

Actual Satellite Makers -- Intelsat, Immarsat etc. Terrible businesses, high technical risk (for geo-sync, $billions per satellite + insurance costs for failed rocket launches), need to create a new version every x years, several players have been in and out of bankruptcy and carry large debt loads.

 

There are a lot of very very smart people working on making satellites cheaper or coming up with a less expensive work around.

 

I think SpaceX has it's own miniature satellite program that it's working on as well.

 

There are a range of different satellites, and the two types that are mentioned in this thread seem to be low-earth orbit and geo-sync.

 

Geo-synchronous means the satellite is positioned far enough outside in space (22,236 mi) where its orbit matches the earth and the satellite will stay in the same relative position. These satellites are about the size of a school bus and cost billions, need pretty big rockets to launch, but the good is that you can have 2-3 satellites and blanket coverage a large country. Also, your satellite receiver can point in the same direction in the sky and not have to move (if you have had dish/directv, you would know what I mean).

 

Low earth orbit satellites are small and cheap and don't necessarily need to be strapped onto rockets, but the problem is they are circling the earth at very high speeds, so to cover an area, you need a large constellation of satellites, not to mention a receiver that can switch between different satellites quickly. Definitely could be the future based on cost and ease of getting into orbit, but I don't think anyone has completely "figured it out" yet (except maybe Military? but we haven't gotten that technology yet).

 

And don't get me wrong, Project Loon is cool, but its definitely a moonshot bet (low probability, massive payout). Have they even released a proof of concept yet?

 

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It depends upon which segment and type of satellite.  The best part of the business is the geostationary satellites as they command very good margins for the bandwidth they provide and there is a fixed number of satellites that can be in a given location.  Typically, these guys are leasing transponder space to other communications firms.  They also have long-term recurring revenue.  They also include Sirius, SKY Perfect & DirecTV.  Competitors include Intelsat, Inmarsat, SES and some smaller Asian firms. 

 

Other satellite service providers that have non-geo satellites are in a different position.  Some of the imagery providers are good businesses but others with smaller satellites & large constellations are not. 

 

The satellite makers are cyclical as other hardware producers are and do not have the recurring revenue of the geo satellite service providers so these are dependent where you are in the satellite build cycle.

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My opinion, not that i'm an expert or anything, is that communication satellites are an obsolete technology. Today's fiber and cell networks are vastly superior and are pervasive. As other posters mentioned satellites are very expensive to build and launch. GEO satellites also have high latency times given their distance LEOs are better but since you need massive constellations the cost becomes ridiculous.

 

They are still useful but mainly in niche situations so they're not going away anytime soon. But given their limited uses I don't see any meaningful growth in the near future.

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Geosatellites are the backbone of many communications/media networks.  They are key pieces of communications infrastructure.  If you look at the margins (upper 70s to 80s EBITDA margins) and LT contracts (up to 15 year contracts) these firms have you can see that this is the case.  The Intelsat 20-F has some good information about the market and the competitiveness in each of the 3 major market segments (telecom, media & gov't).  The overall market is about a $13 billion/year market growing at about 3% per year. 

 

Packer 

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I didn't say they're useless. And yes they still perform important functions. GEOs are excellent at broadcasting a one way signal over a wide geographic area. So if you want to broadcast say ESPN or Howard Stern to the continental united states there's nothing better than a GEO satellite. They're not so good at the two way communication thing so they're not so great at say video on demand. The world keeps moving away from one way communication to 2 way communications.

 

Satellites due to costs and other reasons have longer lives and they're harder to modify and adapt to changes in demand. Terrestrial technology is much more customizable and upgradeable. So just to clarify, I'm not saying satellites will go away, they just that don't have a very bright future with everything that's going on.

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I agree to growth potential may have declined but just as terrestrial technology has increased, satellites will also.  The Intelsat 20-F describes some of the changes in the new satellites.  IMO they key to a good business versus an average one is lack of competition.  I see this in satellites and not with terrestrial communications.  Although satellite communications will not grow as the same speed as terrestrial communications services, the lack of competition will provide much higher margins, 70s to 80s versus 20s or lower for faster growing terrestrial players in competitive markets.

 

Packer

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Thanks everyone for the comments so far.  FYI, the stock that piqued my interest recently is Orbcomm (ORBC).  There's a good writeup on VIC, which is old but the discussion thread is fairly up to date.

 

I noticed that GSAT has been a disaster and IRDM looks really challenged to get its new constellation in the sky before the old one is required to go out of service http://bit.ly/1XcjX5H  IRDM competes with ORBC in M2M (machine to machine) communications, but the bulk of its business is voice.  All 3 use LEO satellites.  ORBC's satellites are apparently much cheaper and they recently replaced their original constellation without much trouble, or added debt.

 

Can anyone think of other LEO-related names? 

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LEO satellites are not a good business IMO due to the large number of satellites and expenses associated with keeping these constellations aloft.  The main communications competitors are the terrestrial cell phone firms who cover the densely populated areas (where the highest returns can be found).  IMO the satellite solutions are solution looking for a problem to solve and thus all of these firms have gone BK at least once in the past.  Even ORBC (who is best of the bunch) has an EBITDA margin less than 20% which IMO shows how disadvantaged these firms are versus wireless competitors.

 

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O3B was recently acquired by SES.  O3B is an MEO company.  OneWeb is another LEO company.  They've signed up Airbus as the contractor and are planning to build hundreds in a Florida facility.

 

http://techcrunch.com/2016/04/19/oneweb-will-mass-produce-historic-number-of-satellites-with-new-florida-factory/

 

Google has Project Loon - high altitude balloons and have apparently gotten government agreements with Sri Lanka and India.

 

The other player who is regional now but going global is ViaSat with their very high bandwidth Ka satellites.  I've got some money in that one having followed Baupost.

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  • 11 months later...

LEO satellites are not a good business IMO due to the large number of satellites and expenses associated with keeping these constellations aloft.

Packer

 

Agreed, LEO only really offers an advantage in latency and that is not something the market is asking for.

The market revolves more about capacity, which is much cheaper for GEO than LEO.

 

Note that in contrary to GEO satellites, LEO's lose a big part of their usefulness when they go over the poles.

 

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