Smallsat market keeps growing despite supply challenges: Euroconsult

Despite supply challenges and lingering inflation concerns, the smallsat market keeps growing in all metrics due to increasing government investments and commercial new entrants, notably driven by defence agencies in the wake of the SDA as well as robust Asian demand for smallsat hardware and data services.

Two constellations alone – Starlink (SpaceX) and GuoWang (China SatNet) – will collectively account for nearly two-thirds of smallsats to be launched over the next decade and over four-fifths of smallsat launch mass. This significant prominence is largely a consequence of the Federal Communications Commission’s (FCC) partial approval of Starlink Gen 2 filings, alongside SpaceX’s launch of 1G satellites on 2G orbital planes, and the substantial expansion of GuoWang activities in China. However, the two mega-constellations will only represent less than a quarter of market value due to the large cost efficiencies of mega-constellations, leaving significant opportunities for other market participants.

Euroconsult’s latest ‘Prospects for the Small Satellite Market’ market intelligence report, now in its ninth edition, anticipates that the smallsat industry will accumulate around $110.5bn in market value over the next decade, driven by the replenishment cycles of constellations around the world but also by more complex and costly single satellite missions for government users. Yet the high-volume market keeps presenting a number of challenges, including limited market addressability for suppliers, difficult profitability, oversupply, and dominance of commercial activities by a handful of established players.

“New constellations are expected to face scope reductions and consolidation as inflation will keep impacting their materialisation probability, alongside supply chain issues and growing costs or limited availability of semiconductors and raw materials,” said the report’s lead author Alexandre Najjar. “Nonetheless, smallsats still represent a significant capability-building opportunity for new entrants in the space sector, with the conflict in Ukraine spotlighting the merits and value of commercial satcom and Earth observation smallsat constellations.”

Regional demand retention rates and vertical integration are expected to only increase in the future, according to Euroconsult, as more emerging countries and operators seek to procure their own smallsat systems and develop their manufacturing or launch capabilities.

However, this will impose constraints on the addressable markets for many commercial smallsat players, with emerging launch operators also actively exploring opportunities to diversify into subsystems and satellite manufacturing, enticed by the higher profit margins offered in comparison to the launch industry. Some launch providers are even venturing into satellite operations and downstream services to further expand their business horizons. Several players are thus considering >500 kg constellations, including Starlink 2G, Project Kuiper, Telesat Lightspeed, Rivada, Intelsat MEO, and O3b mPower.

Though, as some constellation operators transition to larger satellites in a quest for more performance and lower capacity costs, this may create the impression of a shrinking smallsat market towards the end of the decade. SpaceX’s shift alone, powered by Starship’s entrance to the launch market, can lead to a perceived deficit in the industry, but Euroconsult indicated that the industry’s growth is forecasted to continue at a steady rate when removing Starlink and GuoWang from the equation.

Long-term government agency contracts will continue to serve as a pivotal driver for this growth, including ESA’s commercial additions to its Copernicus programme, Starlink’s government support, and the National Reconnaissance Office’s 10-year contract with Maxar, BlackSky and Planet Labs, offering reassurance and resilience to investors.