By Michelle Jones
From Amazon.com, Inc. (NASDAQ:AMZN), to Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) and Alibaba Group (NYSE:BABA), drones are quickly turning into the next big thing. While unmanned aircraft are currently just niche products, applications for them in all parts of life are being explored. One day drones will probably be a part of everyone’s daily lives.
In a report dated Feb. 11, Nomura Holdings analysts Leping Huang, Ph.D., David Hao and Rex Wu shared their views on the opportunities that will be available in the civil drone market. They believe today’s drones fall into the category GoPro Inc (NASDAQ:GPRO)’s active video cameras once did. They also think that just as GoPro’s cameras are becoming ultra-popular outside of their niche, so civil drones will be one day as well.
Where can civil drones be used?
The Nomura team sees numerous applications for civil drones and notes that many industries are already using them. Of course drones were first used by the military, but civil drones are quite a bit different. All images in this article are courtesy Nomura (additional credits listed on images where applicable).
The analysts say that currently the drone industry is seeing strong demand in several areas. For example, they’re being used in recreation, especially in Hollywood for filmmaking. Drones are also being used by BP for oil and gas inspections and to send humanitarian aid into areas in need of relief.
Google and Facebook have also been making headlines with their innovations in the world of drones. Google has been testing delivery drones for its Project Wing, putting it in direct competition with Amazon, which has also been testing its own delivery drones. Amazon is now on its 11th generation drone for its Prime Air delivery service. Chinese e-commerce giant is in the process of trying out delivery drones as well.
There have also been reports that Google is building a robot army of sorts. Also Facebook management has talked about using drones to deliver Wi-Fi internet access to parts of the world that currently don’t have access.
Drone industry growing quickly
New technology is always very expensive, but prices for drones are starting to come down, with some being available for as little as $500. The Consumer Electronics Association estimates that this year, there will be 425,000 civil drones sold this year and that they will sell for a cumulative $130 million, a 50% year over year increase.
Regulators have yet to catch up with the drone industry, as the Nomura analysts note, saying there is still “a lack of adequate regulatory framework” in the drone market. For example, the U.S. Federal Aviation Administration defines drones as “model aircraft” that are only for “hobby and recreational use only” and can fly only up to 400 feet and carry no more than 55 pounds.
For now, most commercial drones are grounded, but lawmakers have ordered the FAA to add drones into the U.S. airspace by this coming September. Clearly this is something they should do as soon as possible. Last month a drone flew into the airspace over the White House, causing a lockdown that lasted for two hours.
In Europe, integration of drones into airspace has been ordered to happen by 2016, and they will be required to have an operating mass that’s no bigger than 150 kilograms. Drones are also required to be used for “research, experimental or scientific purposes,” according to Nomura.
In China, regulators look at civil drones as a “general aviation aircraft,” and the Nomura team doesn’t expect this to change anytime soon.
Drones already in use
But regulators had better catch up quickly, as drones are already growing in popularity. In fact, according to the Nomura team, the production crews for Transformers: Age of Extinction and Expendables 3 actually used drones to shoot scenes for the films.
The FAA does show signs of catching up though, as it has granted a number of exceptions—24 of the 342 requested exceptions, to be exact. Those were for uses of aerial surveying, construction and inspections of oil refinery flare stacks.
The value chain of a drone
So which companies will benefit from the rise of drones? Most of the companies are private Chinese companies, although there is one familiar name on the list. GoPro will actually benefit because many drones will need the types of cameras and camera stabilizers the company makes. However the company faces stiff competition from Sunny Optical, which already holds more than 70% of the global civil drone market share, according to the Nomura team.
The analysts list five main components of a drone. In addition to the camera stabilizer, drones need an autopilot system, an image transmission system, a copter platform and a ground station.
And if these private companies follow in GoPro’s footsteps because of the increasing popularity of drones, then we could one day see them go public. Nomura analysts put together a list of companies that will probably be key players in the drone market.