Drones Could Propel Ambarella, Others To New Heights
BY
MICHAEL PERRAULT, INVESTOR'S BUSINESS DAILY
08:02 AM ET
Tech companies are positioning to get in on the ground floor as the nascent
drone industry takes off.
They're developing pocket-sized drones and others with wingspans larger than Boeing 737s. They're equipping drones with cameras and sensors to manage vineyards, capture aerial photography for movies, deliver holiday gifts, inspect telecom towers and provide hobbies for kids.
Already, company executives and analysts are gauging potential revenue gains from the drone market.
Chipmaker Ambarella (NASDAQ:
AMBA) is supplying system-on-a-chip
technology for Chinese drone maker SZ DJI Technology's new Phantom 3 models being used by photographers and filmmakers. Ambarella's sales of chips for drones are likely to soar to $50 million in 2017 from $6 million this year, given Ambarella's close partnership with SZ DJI, Canaccord Genuity analyst Matthew Ramsay said in a July 13
research report.
"
We believe the drone market should roughly double each of the next couple years, growing from around 1.5 million units in 2014 to 3.2 million, 5.9 million and around 10 million units from 2015 to 2017," Ramsay said.
Ambarella CEO Fermi Wang said in a June conference call with analysts that shipments of drones with embedded cameras are likely to exceed 1 million units this year and eventually could become as big a market as wearable sports cameras.
In the June quarter, Ambarella is on track to ship SoCs (system-on-chips) for roughly 400,000 drones, Pacific Crest Securities analyst Brad Erickson told IBD. "This segment has quickly turned into 15% of the company's total operating profit," he said.
In a research report, Erickson said that checks of the recently launched DJI Phantom 3 drones indicate "strong demand," with Best Buy (NYSE:
BBY) selling out its entire U.S. inventory with no timeline for replenishment. Erickson estimates that every 25,000-30,000 drones sold drives a penny of incremental earnings per share for Ambarella.
Worldwide sales of drones to companies and consumers are estimated to reach
$4.5 billion this year, up 36% from $3.3 billion in 2014, according to market research firm Frost & Sullivan, with total consumer and commercial sales reaching
$11 billion by 2020.
Drone designers and businesses supplying components aren't waiting until late next year when the U.S. government is expected to announce regulations for commercial drones. As of mid-June, more than 545 companies had obtained permits to use drones to film movies and commercials or for other uses, the Federal Aviation Administration said.
In April, e-commerce leader Amazon.com (NASDAQ:
AMZN) got FAA approval — technically, a Section 333 exemption — to test its delivery drones as long as they fly at less than 100 mph and under 400 feet. Amazon aims to deliver packages via its Prime Air service.
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