The DownLinQ
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The DownLinQ

There has been growing interest in commercial small-satellite synthetic aperture radar (SAR) recently. The purpose of this blog is to highlight some key factors that should be taken into consideration when investing in small-sat SAR. These factors can be broken down into two main areas: (1)technical feasibility and (2) financial viability.

Technical Considerations

While the details of any design will vary depending on assumptions regarding the specific application(s) of the system, all SAR systems require an antenna, a radar module, and significant power. We explored a variety of commercial use cases and found that at a minimum, a 3-m effective diameter antenna is required[1], and this size appears to be consistent with a variety of proposed systems. However, antennas of 3m or larger effective diameters deployable from satellites that are constrained in volume to EELV Secondary Payload Adapter (ESPA)-class or smaller are currently at a low ‘Technology Readiness Level’ (TRL). In other words, these antennas are far from commercial off-the-shelf or ‘COTS’ and require significant investment to become affordable and reliable.

Another important technical consideration is that while SAR theoretically offers the ability to image through clouds and at night, this does not mean that every place that can be accessed by a SAR satellite can be imaged by it in a single pass. It is important to run physics-based models to assess the true on-orbit collection performance of a proposed small-sat SAR constellation. This is particularly important because revenue depends upon the number of useful images that can be generated — and that number can be surprisingly low for a power and aperture constrained SAR system.

A third point worth emphasizing is that companies that are trying to deliver new unproven capabilities to orbit need to distinguish between risk mitigation and risk avoidance. While striving to achieve aggressive timelines, it is important to resist the temptation to eliminate essential ground tests that are required for good technical and financial risk management.

Financial Considerations

Estimating Cost:

Estimates of operating expenses should include the following: (1) cost of services (e.g., technical labor, ground stations, lease of buildings, development & test equipment, etc.); (2) launch services, including the cost of satellite transportation and integration as well as launch insurance (see commercial ride share launch pricing here); (3) research and development (R&D); (4) selling, general and administrative (SG&A) expenses; and (5) depreciation and amortization expenses for the satellites. It is important to note that while the ability to replenish satellites every 2–3 years enables “rapid tech insertion and refresh”, it also incurs substantial cost in terms of depreciation as well as significant launch costs for replenishment.

The details of a cost estimate will of course depend on assumptions regarding per satellite cost, labor requirements, constellation size, and so forth, but the key elements of any cost estimate must include all of the above items, in addition to things like interest expense on third party loans, and non-recurring-engineering (NRE) costs associated with low TRL component development. Fiscally responsible estimates will also include costs for the development of satellite spares, and the allowance for launch and satellite failures. Regardless of the specific assumptions, building and launching small-satellite SAR satellites is a capital-intensive proposition.

Estimating Revenue:

Estimating revenue is more difficult than estimating operating costs, particularly because part of the value proposition of commercial small-sat SAR, and commercial small-sats in general, is that if one can significantly lower the operating cost, then one can significantly lower the price point of the product, thereby attracting new customers and creating new markets.

There are two challenges to this value proposition: (1) the operating costs are still significant, even if one assumes away the NRE costs, and (2) technical limitations of small SAR satellites limit how many useful collections are possible, thus limiting the revenue opportunity. This puts tremendous pressure on the price point that can be set that facilitates attracting new customers to a currently limited market while still enabling profitability. In addition, excess SAR collection capacity in the current market highlights the perceived value deficit of SAR data at current price points. Lower prices might increase the market value of SAR data but strong growth of the overall remote sensing market driven by a variety of new applications will likely be required in order for new entrants to achieve sufficient sales volumes.

Additional Considerations:

Foreign owned public/private systems are in an active refresh cycle, and any financial assessments should take that into account. Airbus, MDA, and e-GEOS (which fly TerraSAR-X, RadarSAT 2, and COSMO-SkyMed, respectively) own a majority of the current market share and receive financial support through government organizations. Competitive activity from these firms will further complicate US start-up business models. Business models also must not ignore the availability of free SAR imagery from the European Space Agency’s two Sentinel-1 SAR satellites, which cover most of the world every 6 days at medium resolution.

Conclusions

We recommend that anyone considering investing in SAR small-sat constellations take the time to develop detailed models that allow them to objectively assess the technical and financial risks. In small-sat SAR there are four risk factors to address; 1) technical immaturity, 2) significant capital requirements, 3) constraints on revenue opportunity due to inherent technical limitations of small-sats, and 4) the growth constraints of the current SAR market. The last factor could improve with time, particularly if advanced analytic techniques such as machine learning offer new ways to leverage small-sat SAR imagery, but a substantial increase in the addressable market and/or the perceived value of SAR data will be required to offset the other three factors.

This post constitutes a high-level summary of our research report. Please reach out to us at CosmiQ’s “contact” page if you would like to learn more about the study.

[1] Without getting into details, because of antenna efficiency, the physical diameter will always be larger than the effective diameter of an antenna.

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As of March 2021, CosmiQ Works has been folded into IQT Labs. An archive will remain here to showcase historical work from CosmiQ Works that took place July 2016 — March 2021.

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