Euroconsult anticipates that about 18,500 smallsats (<500 kg) will launch over 2022-2031, or about 365 tons per year, i.e., one ton per day on average over the next 10 years. However, the smallsat market presents a growing number of challenges e.g., limited market addressability, difficult profitability, oversupply and concentration of the commercial market by a handful of established players. Nonetheless, smallsats still represent a significant capability building opportunity for new entrants in space, and the war in Ukraine has put the spotlight on the value proposition enabled by satcom and Earth observation smallsat constellations, showcasing their merits around the world. A growing number of governments and commercial ventures alike ramp up their investments in smallsat systems and services, as well as manufacturing and launch capacities. Yet, growth is driven by several factors and must be contextualized as a few mega-constellations concentrate very large market shares:
- Satcom mega-constellations concentrate increasingly large shares of the market, led by Starlink which now has over 2,000 units in orbit and launched an operational service. Most of the growth compared to the previous edition consists of Starlink alone, for which we have added replacement/expansion units as it grows in maturity and capacity.
- Growth occurs despite the pandemic and war in Ukraine. The continuous availability of large amounts of capital (e.g., SPAC trend, government relief funds) was not anticipated to last in previous editions. OneWeb’s re-inclusion to our forecasts following its Chapter 11, subsequent acquisition and on-going revival illustrates this resilience.
- Significant growth is expected in Asia, most notably in China which consolidates its plans for LEO broadband under the GuoWang umbrella, a priority of China’s 14th 5-year plan, published 2021. China also witnesses significant growth in commercial constellations.
Commercial operators’ investments to lead governments’
Over the next decade, the total manufacturing and launch market value for smallsats shall reach $84 billion, close to four times the value over 2012-2021. Although this indicates significant growth, it does not reflect the six-fold increase in smallsat mass due to growth in heavier smallsats, constellations and the introduction of low-cost systems for manufacturing and launch, which will reduce average costs and value despite the high inflation context. Market value displays a cyclical trend, and varies depending on satellite operator types:
- Commercial users will lead civil government as the largest smallsat market in value, growing from a $10.6 billion market to about $38.9 billion, a x4 increase. This is a result of the expected rollout of several commercial constellations of all sizes across the world.
- Civil governments (e.g., space agencies, research institutes) shall be the second smallsat users in market value at $24.4 billion, with the expected transition from demonstration prototypes to operational missions. Civil satellite missions typically follow a cyclical behavior, largely due to government budget schedules and procurement cycles.
- Military users will account for $19.3 billion, i.e., x4 growth compared to last decade. They used to favor larger satellites yet are starting to adopt smallsats for operational use.
Manufacturing market to triple decade-to-decade
The smallsat manufacturing market, which was valued at $15.5 billion over 2012-2021, is set to grow by +258% to $55.6 billion over 2022-2031, driven by the multiplication of constellation projects from both commercial and government stakeholders. However, in countries where an established supply chain and integration capabilities exist, government demand will likely be captured by domestic industry, meaning that most contracts are not open to foreign bidders. In-house manufacturing is expected to capture large shares of units and value, leaving large market shares not accessible to some commercial stakeholders.
Launch options to multiply, creating risk of oversupply
Over 2012-2021, 4,663 smallsats were launched on 375 launches by 44 vehicles. Six launchers (Falcon 9, Soyuz, PSLV, Antares, Atlas V, Electron) accounted for 83% of units and 91% of mass. In the past, smallsats experienced difficulties and delays to reach orbit. After years of launch bottlenecks, smallsats now enjoy more launch options as new launchers, brokers and smallsat dispensers become available and facilitate access to space. The smallsat launch market which was valued at $7.6 billion is set to grow by +279% to $28.4 billion, however much of that launch value remains captive of national industries and vertically-integrated players e.g., SpaceX. Launch providers had not actively pursued the smallsat launch business in the past, as demand was fragmented and considered as less profitable than larger satellites. This has now changed and launch supply has rapidly adapted. Launch supply expands at both ends of the market with micro and small launchers becoming operational on one hand, and super-heavy launchers (New Glenn, Starship) still in development on the other hand, yet the economics of small launchers remain challenging as the financials of publicly-traded companies show. The risk of oversupply is real and growing.
Public listings show challenging profitability of smallsats
Following the wave of SPAC listings and IPOs that occurred over the past few years, many smallsat players now must file for annual reports, publicly confirming previous warnings of challenging revenue generation and profitability in a highly competitive, low-margin business environment that is aggravated by high inflation and supply chain issues linked to the pandemic and war in Ukraine. Many emerging launch providers now seek to diversify into subsystems and satellite manufacturing, as well as into operations and downstream services in some cases, which are higher margin businesses. Yet, public companies are only the tip of the iceberg as many private entities and smallsat flagships (e.g., Starlink and OneWeb) also have yet to become profitable. Securing government agencies as anchor clients is and will remain key to the newspace sector, most notably via long-term contracts (e.g., NRO 10- year deals with Maxar, Planet and BlackSky) to give visibility to investors and customers.
Vindicated by the war in Ukraine, smallsat constellations are here to stay
While the war has severe consequences on players that have part of their supply chains in Russia or Ukraine (e.g., OneWeb with Soyuz and Fakel), it has demonstrated the value of smallsat applications, enabling commercial operators to showcase their capabilities and the merits of their constellations. Resiliency and responsiveness are key in the conflict, as SpaceX demonstrated by rapidly shipping Starlink terminals to Ukrainian armed forces and NGOs. In EO, demand for images with a focus on SAR (due to cloud coverage) has drastically increased since the beginning of the conflict. Satellite images have also been used by mainstream media to gather information on civilian casualties and potential war crimes. Consequently, a growing number of government agencies are considering investing in their own smallsat systems or dedicating a budget to the commercial procurement of third- party smallsat-based services, supporting growth of the smallsat sector.
Inflation to impact materialization probability, force constellation scope reduction and consolidation
A typical recent example of the impact of inflation is (non-smallsat) Telesat Lightspeed’s scope reduction from 298 to 188 satellites, despite an unchanged capex. This will also apply to smallsat constellations which may have to reduce their ambition due to the growing costs of semi-conductors, raw materials such as metals or propellants, as well as inflation-driven supply chain issues (e.g., oil price, transportation, etc.). While well-funded and established or government players (e.g., Amazon, China) will likely be less affected than others, emerging players that have yet to raise significant amounts of capital will likely face a difficult situation, leading to smaller constellations, cancelled projects, and consolidation between players.
Quest for performance and deep pockets to push Starlink 2G & Kuiper above the 500-kg smallsat mass threshold
Despite miniaturization and growth in the number of cubesats, the quest for performance and the addition of sensors, thrusters and hardware results in steady growth in average smallsat mass. Following initial demonstration missions with cubesats, many smallsat operators move to larger smallsats to improve their value proposition via increased performance or a longer lifetime. As an example, Starlinks have grown in mass with the addition of optical laser links, and a mass of 1,250 kg for next-generation Starlinks was mentioned by Elon Musk, aiming for better economics and to make the most of Starship’s launch capacity and diameter. Similarly, following its historic contracts with multiple launch providers, we now anticipate Kuiper satellites to be above 500 kg i.e., out of the smallsat realm. This potentially means less smallsats to be launched towards the end of the decade and a peak to be reached in the next few years, as Starlink 2G and Kuiper are expected not to be small satellites. This is also a feature of the deep pockets of Mr. Musk & Bezos, as they have less incentives to reduce mass and capex vs. more capital-constrained constellation developers.