The future of connectivity depends on a big idea; the launch of vast constellations of inexpensive satellites.
Elon Musk's SpaceX got one step closer to that dream on Nov. 16 when the Federal Communications Commission granted approval for the launch of 7,518 satellites.
The implications and the opportunity for investors are big.
Musk muses that that he founded SpaceX to make a small fortune. The punchline is that he began with a large fortune. As an early investor and leader of PayPal -- and later, of course, Tesla (TSLA) - Get Report -- his investment career has been charmed. He always started with a big idea, then worked backward to find a way to make it work.
With Tesla, his electric car company, Musk aspired to wean the planet off gas-guzzling cars. He began with a no compromises all electric sportscar built for enthusiasts. He followed with less expensive, but still fun to drive vehicles aimed at the mass market.
Musk's space ambitions preceded electric cars, and they are more far reaching. He has been dreaming of interplanetary travel since SpaceX was founded in 2002. Ultimately, he would like to colonize Mars. But getting to the red planet requires a monumental engineering effort and a huge capital investment with limited returns.
So SpaceX engineers reimagined space travel. They started with the idea that rocket boosters should be reusable. Launchers can cost $60 million a pop and normally end up at the bottom of the ocean minutes after blast off. Reusing the booster reduces the cost of future launches to $200,000 worth of fuel. It also means faster turnaround times, and profitability.
Better rockets are innovative. But that alone is not enough to fund Mars.
Starlink is a constellation of inexpensive satellites. These Low Earth Orbit (LEO) beacons would beam coordinated signals back to Earth from 210 and 750 miles away using the Ka and Ku frequency bands.
In theory, a system of this size could blanket the entire planet in high-speed internet connectivity. The use cases would be extraordinary. Internet service providers might beam signals directly into homes, negating the need for costly fiber optic lines. Wireless carriers could offer subscribers worldwide, unlimited voice and data plans without the fear of lost signals, or roaming charges.
And low latency, high bandwidth global connectivity would speed up next generation network applications. It would make cities smart, cars driverless and manufacturing more efficient.
In the past, satellite internet has been plagued by costly devices parked far away from Earth in geostationary orbit. The service was slow and notoriously poor in bad weather. Numerous LEO devices with the latest semiconductors, machine learning and smarter antenna systems would remedy these shortcomings. Signals could be effortlessly bounced around storms.
In January, the Wall Street Journalreported that Space X internal files showed its constellation internet service is projected to earn $15 billion in profits annually, beginning in 2025.
Investors should think smaller. The secret is the little things, inside the big idea.
Versum Materials (VSM) makes the specialty chemicals and machines that semiconductors firms use to build next generation microprocessors. Its customers range from Intel (INTC) - Get Report to Samsung (SSNLF) , and every company in between. If a processor pushes the envelope, it has Versum in its DNA.
Business is good. Sales grew 21.8% in fiscal 2018. All of the key managers are their middle 50s, with plenty of experience cultivating relationships in the sector. And at only 12.8x forward earnings, the company's share price is not high.
Macom Technologies (MTSI) - Get Report is considered the leading maker of phased array antenna systems. Next generation wireless networks will utilize this technology to beam signals into homes, office buildings and shops.
Its scalable planar array tiles, developed in partnership with MIT, set a new standard in antenna design. They are five times less expensive than conventional slat arrays and can be tailored and scaled for multiple applications, including 5G.
The Lowell, Mass., company has had a tough stretch. Its optical networking business got caught in the lengthy transition from LTE to 5G. And it was hurt by the ongoing trade war with China, one of its most important markets. Now the transition to 5G is finally under way, and Macom still makes best-in-class gear.
The stock trades at 12.1x forward earnings. Shares used to be $60. They are now $18.
Blazing fast internet beamed from space is coming. It's a big idea made possible by small innovations in silicon and antenna design.
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Jon Markman has no positions in the stocks mentioned in this article.