Northern Sky Research

Dim Light at the End of the Tunnel?

Jun 19th, 2017 by Carolyn Belle   More from this Analyst | Profile

For the last three years, satellite manufacturers have struggled to win orders and generate revenue in a down market. Headwinds that emerged in 2015 – launch access, financing availability, insecurity about demand evolution, and the threat of non-GEO systems – have endured and intensified during 2016 and 2017, with few operators finalizing new orders despite high RFP activity. While satellite orders are expected to increase, the evolving shape of demand precludes a return to the ~25 satellite orders average.

  

Ongoing Market Pressure

Pressure to optimize and (in many cases) reduce CAPEX due to low capacity pricing will not dissipate, limiting orders to those with a robust business case. Emerging solutions such as life extension may become relevant for some assets, particularly those serving strong video neighborhoods, as operators seek to lengthen CAPEX cycles. Yet as the shape of data-driven demand clarifies, operator confidence in ROI should improve and alleviate this restraint on contract finalization. 

Lower Replacement Rate

The addition of HTS payloads and increasing efficiency in transponders per satellite, supported by advanced platform design (e.g. power, payload fraction), has significantly increased per satellite capacity. Combined with the implementation of electric propulsion for orbit raising, a highly capable satellite can be placed into orbit for a fraction of the cost feasible a decade ago. For operators with multiple assets in the same or clustered slots, it is possible to replace multiple satellites with a single new bird. With the greater cost efficiencies of larger satellites, this presents a compelling value proposition for streamlined replacement – even if a slot must be relinquished to competitors.  

While a prior concern with concentrating capacity onto a single bird was the risk of trapped capacity in the face of evolving demand, advances in flexible technology are helping operators plan procurements with the potential to adapt to a changing market. The balance between capacity, flexibility, and CAPEX will be unique to each operator and each satellite business case – we will not see every bird going up with Tbps thoughput – but overall trends point to a growing Mbps per satellite moving forward: NSR forecasts that HTS and hybrid HTS/FSS satellites will grow to 70% of GEO comsats ordered by 2026, a big jump from 53% in 2016. 

Capacity Diversity

As MEO constellations expand and LEO-HTS constellations are developed, the GEO market is adjusting to not being the only game in town. For growing applications like consumer broadband and wireless backhaul, non-GEO will be in direct competition with GEO. In many other cases, this new capacity is complementary to GEO, with SES, Intelsat, Telesat, JSAT, and ViaSat looking to cross-sell non-GEO and GEO services to address diverse customer requirements. With the surge in non-GEO increasing competition as well as filling out capacity portfolios, growth in GEO demand is restrained.  

Limited Customer Pool

Few new players are expected to emerge in the GEO space, generating only minimal added demand. All GEO start-ups to date are targeting data-centric, Ka-band HTS (and moving forward, Q/V band) applications – Kacific in 2017, Global IP in 2016. Some may be successful and become regular customers, while others (NewSat, 2011) may fail to reach orbit. 

Overall, NSR’s Satellite Manufacturing and Launch Services, 7th Edition report found these factors culminate in an average annual order rate of 20 satellites for the 2017-2021 time period, growing to 22 satellites between 2022-2026 – both lower than the 24 satellites per year average before 2015. This smaller addressable market will challenge a growing set of manufacturers looking to win contracts and fill their factories.

 

For manufacturers able to win bids, the more advanced capabilities and flexible technology sought by operators add a premium on average satellite cost, compensating for the lower number of orders when assessed from a macro market size perspective. 

The broader satellite marketplace offers other opportunities to manufacturers pinched by declining GEO satcom demand, with the Science & Technology Development and Non-GEO Communications markets promising the most revenue growth. While non-GEO markets are still speculative as pieces fall into place for mega-constellations, they offer potential for a steady stream of business due to faster replenishment rates. 

Lower order rates clearly have a knock-on effect for launch service providers; while still working through a backlog of satellites ordered during strong, pre-2015 years (a process prolonged by several failures and delays), lower order rates will heighten already intensified competition as LSPs aim to fill their manifests. 

Bottom Line

The 2015-2017 dip in commercial GEO satcom orders was largely a result of temporary challenges; as operator confidence in the market improves and the launch environment stabilizes, orders are expected to increase. Yet ongoing market pressure, increasing per satellite capabilities, and the emergence of capacity diversity across non-GEO and GEO imply that operators will nonetheless procure fewer GEO satellites than the historic norm. For manufacturers, this means a light at the end of the low order tunnel – but one less brilliant than when they entered in 2015.