Satellite Industry Enters Commercialization Era

The era of satellite internet is upon us, marking a significant shift in global connectivity that succeeds traditional wired and wireless networksThis transition into the third generation of internet infrastructure brings with it an array of advancements in technology, including chips, devices, algorithms, software, navigation data, terminal devices, and more, all of which are witnessing continuous upgradesThe potential applications that can be realized from this infrastructure are vast and present considerable opportunities for investors in the capital markets.

The satellite communication industry is rapidly maturing, and we are witnessing an acceleration in infrastructure development and application deploymentIn China, the Beidou navigation system, which offers global positioning services, is entering a thriving phase with increasing utilization

Several listed companies have reported a strong performance in the first half of 2024, showcasing notable growth in revenue and net profits.

Chinese manufacturers have established a robust platform for high-precision GNSS chips and related technologiesThey have successfully developed and mass-produced essential hardware, such as high-precision GNSS baseband chips, circuit boards, and antennasThis advancement means that key technologies are now under local controlThe introduction of mobile phones that can connect directly to satellites opens new avenues for satellite internet applications in the consumer marketThis change will stimulate demand for satellite-based phased array systems, inter-satellite links, signal processing, and more—a trend that forecasts a substantial increase in market activity.

As we transition to the 6G era, a harmonized network integrating satellite, aerial, and traditional ground networks is anticipated

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The collaborative framework of these three components is pivotal, as it will propel us into a new age of connectivity that seamlessly combines terrestrial, aerial, and satellite data transmissionThis convergence is set to redefine various sectors, resulting in intense research and development competition amongst chips, systems, modules, and components, thereby creating a vibrant new industry ecosystem.

The commercialization of satellite internet services is gaining momentumThere's a clear division within the satellite industry, comprising the space segment, ground segment, and end-user segmentThe end-user segment is further delineated into upstream components like chips and antennas, midstream operators, and downstream software and hardware service providersAccording to various reports, the industry's total output value reached approximately 536.2 billion yuan in 2023, representing a 7.09% increase from 2022. The core of the industry, primarily related to the research and application of satellite navigation technologies, yielded about 161.1 billion yuan—a 5.5% year-on-year growth.

The launch of the Beidou satellite navigation system has dramatically changed the space segment landscape

As of 2024, it is entering a critical marketization and industrialization phase, with 45 operational satellites in orbit: 15 from the Beidou-2 series and 30 from Beidou-3. All are functioning effectively, stabilizing a service network that is anticipated to expand significantly by 2028, with projections suggesting nearly a thousand low-orbit satellite launches each year.

The commercial value of ultra-low orbit satellite constellations is immense; their reduced orbital altitude allows for more efficient ground observations and a significant drop in operational costsBusinesses can expect up to a 50% reduction in optical payload weights and costs for comparable resolutions, while synthetic aperture radar systems can see reductions of up to 40%.

Market analysts have indicated a rapid growth trajectory for the satellite internet sector

Reports suggest that the market size of China's satellite internet industry hit 29.25 billion yuan in 2021, with expectations to escalate to over 44.69 billion yuan by 2025. The compound annual growth rate from 2021 to 2025 is projected at around 11%, reflecting a robust upward trend.

On the application front, the growth potential is substantiated by the rising adoption of smartphones compatible with the Beidou-3 short messaging service, which reportedly saw several million units sold in 2023. Additionally, the shipments of smartphones supporting Beidou location services have reached 269 million units, indicating that a billion-unit market potential is on the horizonHowever, for the commercial application policies to fully materialize, additional manufacturers must engage in trials to validate the market's potential.

Moreover, some domestically produced electric vehicles have already integrated Beidou positioning and short messaging capabilities

The advanced lane-level navigation powered by Beidou now covers hundreds of cities across China, improving the safety and efficiency of driving experiences—especially in navigating lane changes, tunnels, and accident alerts.

Northeast Securities has highlighted that the Beidou system has significant implications in the low-altitude economy, potentially enhancing the capabilities of aircraft and supporting improvements in air traffic managementAs autonomous driving technologies advance from Level 2 to Level 3, the demand for precise lane-level positioning is becoming standard, particularly among high-end vehicle models.

The technology enabling smartphones to connect directly to satellites is becoming increasingly versatileIts applications span across various sectors—including vehicle networking, government and law enforcement, industrial sectors, housing construction, emergency communications, and more

Presently, the number of companies engaged in each phase of the satellite direct connectivity value chain remains low, which suggests an emerging landscape that requires significant technological integration.

Companies within this sector have already started to reap the rewards of these developmentsThe Ministry of Industry and Information Technology has initiated a pilot program aimed at amplifying the penetration of Beidou applications, paving the way for a gradual upgrade to the third generation of satellite navigationRecent policy shifts propose to reform the access system for satellite internet operations, facilitating the engagement of private enterprises in mobile communication and reselling innovative services, which is expected to bolster the growth of private telecom enterprises.

Already, several publicly listed companies in this sector have begun showcasing promising profit trends

Companies like Hige Communications, which spans various domains including wireless communication, Beidou navigation, and aerospace, saw a year-on-year growth in revenue and net profit of 10.67% and 86.67%, respectively, in Q1 2024.

Similarly, Guoboda Electronics, a leading provider of RF components for base stations, has experienced robust demand for its high-linearity control devices used in new generation smart antennas, maintaining a stable gross margin across its operationsIn contrast, Huace Navigation's high-precision positioning equipment amassed over 9.03 billion yuan in business revenue, marking a 22.86% increase year on year, with a significant rise in the net profit as well.

Key breakthroughs in core industries continue to demonstrate the potential of satellite internet technologies

With 5G characterized by high speeds, extensive connectivity, and ultra-low latency, 6G is expected to enhance these capabilities while introducing new integrative environments across sensory and computational domains, as well as advanced satellite communicationsFurthermore, the depth of AI's integration with 6G indicates a promising trajectory for intelligent applications in numerous fields.

In a significant leap, China Telecom launched mobile direct satellite connection services in Hong Kong in May 2024, while also setting the stage for international operationsMoreover, there is an ongoing push from China Mobile towards evolving existing network infrastructures to foster deep integration between aerial, satellite, and terrestrial networks.

As the rollout of these communication networks unfolds, the Beidou grounding supplemented by enhancements is already making inroads into smartphones, achieving meter-level positioning accuracy, with a notable 98.5% of smartphones in China adopting Beidou functionality by 2022. New short messaging chips developed for Beidou are now set to revolutionize the telecommunications landscape.