New Frontier: Swarming Nanosatellites
When at the end of April, Orbital Sciences (NYSE: ORB) and Alliant Techsystems (NYSE: ATK) announced their merger into a new space-system firm, with ATK’s ammunition business being spun off, investors were thrilled. They rewarded ORB stockholders with healthy gains even after the euphoria of the deal settled. They were less thrilled with the rump ATK; apparently, commercial spaceflight is cooler than ammunition.
Although there are many privately held commercial space startups, there are relatively few publicly traded pure-play companies for investors. However, we anticipate that there will be more in the next several years, due especially to the development of nanosatellites. In the same way that the likes of SpaceX and Virgin Galactic are demonstrating the private sector’s superiority in delivering better launch prices, a host of new startups are doing for satellites what those innovators did for launch vehicles.
Traditional geostationary communications satellites can cost up to a billion dollars or more, and typically weigh five to six tons. Needless to say, launching them is expensive, and at these prices, they have been the domain of governments rather than businesses or researchers.
But since the late 1990s, researchers frustrated with those costs and agonizingly slow construction timetables have been developing smaller and smaller satellites, leveraging off-the-shelf components to produce lighter satellites that are cheaper to launch and can accomplish many of the same purposes as their more massive brethren.
The satellite pictured above was designed by Zachary Manchester, a graduate student at Cornell, with a parts cost of $25 per unit, and funded through crowd-funding website Kickstarter. Sadly, the first batch of these “sprites” was lost due to a malfunction during NASA’s launch. (The space agency sent them up gratis.) But a mission redux is now being planned. Postage-stamp sized satellites will soon be orbiting the Earth.
With vastly cheaper construction (and no requirements for the “clean rooms” in which larger satellites are built), swarms of tiny satellites can be deployed. Over the next five years a thousand of them may be launched. Such swarms could perform monitoring tasks more cheaply and more effectively than single large satellites. Automatic identification signals from ships or airplanes (think of the ill-fated Malaysian jet that disappeared in March) could be detected by such a swarm without the vessel needing a costly permanent satellite uplink.
Since they would be in low orbit, such swarms would circle the globe faster, potentially providing a richer data stream for activities such as environmental monitoring. And although their orbits would decay more rapidly, and they would meet their tiny, fiery end in the space of a year or two, their low cost of construction and launch would make them essentially disposable.
And, in concert with commercial launchers, researchers and entrepreneurs could be much more nimble in their deployment of space technology — without the long waits and mission delays associated with larger payloads. Although stocks offering exposure to commercial spaceflight are often expensive (at the time of writing, ORB is trading at 28 times the last 12 months’ earnings), we suggest that investors remain aware of this industry and watch as smaller startups come public over the next several years. Some may ultimately prove successful in the “democratization” of space — and some will prove to be attractive buyout targets for larger defense and aerospace firms.
For more commentary or information on Guild Investment Management, please go to guildinvestment.com.
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