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Robotics: AUVSI Xponential Takeaways And Key Trends

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Includes: AMZN, BA, BOTZ, GE, GOOGL, HNWFF, IRBO, KT, LGCOF, LMT, MSFT, PAOTF, RC, ROBO, ROBT, SMSGF, SSNLF, UBER, UBOT, WMT
by: Hyundai Motor Investment & Securities
Summary

Applications for aerial robotics are growing.

Concerns over Chinese unmanned systems rising.

Optimism abounds but challenges for mass commercialization linger.

AUVSI Xponential Takeaways and Key Trends

Applications for aerial robotics growing

We visited Chicago in late April – early May to attend the Association for Unmanned Vehicle Systems International (AUVSI) Xponential trade show and participate in seminars held by industry, government, and academic unmanned systems leaders from around the world. The event convenes the global community of commercial, academic, and defense leaders in intelligent robotics, UAVs and unmanned systems. The AUVSI is one of the world's largest organizations dedicated to unmanned systems and robotics, and represents corporations and professionals from more than 60 countries.

Overall, the event brought together more than 8,500 technologists, regulators, and users from across commercial and defense sectors for one of the world’s biggest trade shows for the unmanned and autonomous systems industry. Notable trends at the show were products and technologies to enable unmanned and autonomous vehicles to detect and avoid (D&A) other manned and unmanned aircraft to prevent midair collisions in congested airspace. Many of the enabling technologies for D&A capability for unmanned aircraft use visible-light cameras, LiDAR, infrared sensors, and radar, and work with artificial intelligence (AI), machine learning (ML), databases, and sensor processing.

Concern over Chinese unmanned systems rising

What started with security bulletins to US government agencies and its military about potential security risks from Chinese UAVs and networking equipment is now becoming a source of concern for not only US industries but for other governments and industries. This new reality has created an opportunity for non-Chinese players to capitalize on the burgeoning security-driven migration away from Chinese technology companies. We believe that not only US, European, Taiwanese, and Japanese tech companies will benefit from the evolving business landscape, but Korean ones such as Hanwha Aerospace (012450: RATING), Samsung Electronics (OTC:SSNLF), LG Electronics (OTC:LGCOF), SEMCO (OTC:SMSGF), and Foosung Co. will as well.

Outlook for aerial robotics and unmanned systems

Unmanned aerial vehicle (UAV)/unmanned aerial system (UAS) technology has undergone marked development over the past decade with the past two years seeing even greater advances. While early UAS use cases were focused on military applications, research, and radio control (RC) aircraft enthusiasts, today they are utilized in an ever-growing list of commercial applications and are increasingly used by consumers as well. Overall, mobile robotics research and development activities are growing more concentrated on unmanned systems such as aerial robots (i.e. drones, UAVs, UASs), autonomous ground vehicles (AGVs) and other autonomous vehicles (AVs).

There is now a heavy emphasis on integrating machine vision and other AI technologies into all unmanned systems for a variety of reasons which include 1) to overcome regulatory hurdles in the areas of safety, etc., and 2) expanding the overall capabilities of what unmanned systems. Along this vein, investment activity is now very much focusing on companies which are working to integrate AI into their unmanned systems. This trend will rapidly accelerate over the next couple of years and along with the acceleration of this trend, the definition of unmanned system and robot will blur with greater roboticization.

Tech ready but some regulatory hurdles remain

Optimism abounds but challenges for mass commercialization linger

While AUVSI Xponential is about the entire spectrum of unmanned systems, and the show’s focus on ground and maritime robots has increased, AUVSI’s main focus is bringing the industry together for UAV and UAS, and accordingly the majority of the presentations, exhibitors, and participants were focused on UAVs - large and small - and of all types and applications (fixed wing, rotor, human operated and autonomous - defense and commercial). Although a significant portion of UAV technologies are developed in the US, testing tends to take place outside of the country due to more relaxed regulations. This is likely to change over the next few years and evidence of this can be seen with some of the recent decisions by Washington to accelerate development of the US aerial robotics industry.

There are tremendous growth opportunities for the aerial robotics industry, especially on their commercial and industrial usage, to supply new forms of analytics, thanks to their lower costs and higher flexibility relative to manned aircraft or for carrying out jobs which are too dangerous for humans. On the transportation front, there were several companies, including Bell, who displayed their autonomous aerial passenger vehicle prototypes. In terms of overall industry growth, the industry will triple over the next five years from the current USD14.1bn to USD43.1bn as commercial operations increase.

Strong expectations for industrial and commercial aerial robotics

The majority of Xponential participants agree that the aerial robot industry is on the cusp of a period of rapid growth. The technologies are now ready and in place to use aerial robots in existing businesses and to develop entirely new types of businesses, but the regulatory environment remains challenging. However, with several initiatives being launched and promoted by federal and state governments in the US to accelerate the development of aerial robotics businesses, companies are rapidly positioning themselves to quickly capitalize on the market opportunities when it opens.

Public policy struggling to keep up with rapid development: BVLOS is the key

Beyond visual line of sight (BVLOS) refers to UAV flights performed beyond the pilot’s line of sight (or autonomously) as opposed to visual line of sight (VLOS), which are flights done within the operator’s line of sight with first person view (FPV) equipment. Once BVLOS is allowed on a wide scale, the aerial robotics industry will undergo explosive growth in a number of applications.

Despite the majority of UAV/UAS technologies being developed in the US, the more relaxed restrictions of other countries are why much of the testing takes place outside of the US. However, we believe US regulators have become more amenable to relaxing regulations to stimulate the industry and so more testing will take place within the US over the next five years.

The following are some of the more common applications which require UAVs to travel a long distance to gather useful data, and accordingly are the areas which will likely see the bulk of UAV usage once BVLOS operations are allowed.

BVLOS applications

Technologies that may help hasten widespread BVLOS approval

Companies such as LG U+, Gryphon Sensors, and AirMap are aggressively working to create fully-functional Unmanned Traffic Management (UTM) systems. These systems should help accelerate the general arrival of BVLOS approvals around the world and we covered the major players and implications in our report Unmanned Traffic Systems Outlook published on January 22, 2019.

Commercial operations demand solid counter-UAS systems

Moving the aerial robotics industry forward requires an acknowledgement that any new technology will bring its share of problems, and a solid plan to defend against malicious UAVs is required before commercialization begins en masse. Because of this, the growth potential for counter-UAS system businesses is very promising as it is a key component in the aerial robotics business ecosystem. UAS security is a prerequisite to commercial operations in unstructured environments with aerial robots. Even though Alphabet's (GOOGL) (GOOG) Project Wing received clearance from the FAA to being commercial deliveries in the rural US, they are controlled tests that use human spotters on the ground to ensure the ‘performance’ of the system. Looking at the Wing example, it is clear that for commercial activity to begin in earnest with UAV delivery systems, the security issue will have to be resolved. Companies that develop and standardize such systems should greatly benefit in terms of controlling the gate to market entry and dictating pricing.

In Korea, Hanwha Group (OTC:HNWFF) subsidiary Hanwha Systems has begun development of a counter-UAS (C-UAS) system. The company’s researchers are conducting integration tests on the prototype C-UAS radar, which is designed to detect a baseball-sized object at a distance of three kilometers with a coverage radius of 200 degrees and will work with the company’s Quantum Eye electro-optic system. According to the company, the system will be lightweight, transportable by two persons, and less power-consumptive than existing military systems. With this endeavor, Hanwha Systems may become the first company in the Asia-Pacific region to market a C-UAS system as a commercial product.

Counter-UAS

The open-source movement spreads to aerial robotics

Another rapidly emerging trend in aerial robotics is the growing adoption of open standards by UAV manufacturers to accelerate integration and market growth. The leader in the open standards movement for aerial robotics is PX4, which is managed by the Linux Foundation’s Dronecode. At present, the aerial robotics industry shares many of the development characteristics of several industries during their early growth periods, including PCs, mobile phones, automobiles, and many others. These industries shared the common trait in which there is fragmentation and thousands of individual component providers and makers in the early phases of the industry life cycle. In a manner not dissimilar to PCs and mobile devices, aerial robotics will eventually have only a small number of operating systems. As the aerial robotics industry matures and evolves it will consolidate to a handful of quality players and standards.

Switzerland-based Auterion believes its open platform will be among those which emerge victorious from the industry’s consolidation. The company recently made several announcements, including developing an open-source operating system with Silicon Valley startup Impossible Aerospace for its extended flight UAV. Impossible Aerospace was started by an ex-Tesla battery engineer who is building long-range battery technology for UAVs with a long- term goal of using the battery technology replace conventionally-fueled air transport - a Tesla (NASDAQ:TSLA) for the sky as it were. Auterion is also teaming up with General Electric (GE) subsidiary, GE Aviation for its all-in-one hardware and PX4 OS software for commercial UAVs. Auterion plans to work with developers via its global open software standards while maintaining an independent and authoritative safety controller. This should enable BVLOS commercial UAV operations to be utilized in more applications. We believe the combined solution realized through this collaboration will remove obstacles faced by inspection UAVs to flying in urban areas and commercial cargo UAVs while operating in manned airspace.

Microsoft (MSFT) also announced that it will join Dronecode and bring its AirSim simulator to the open-source community, the move by the tech titan signals another major step in the standardization of the PX4 platform. The other major development in the evolution of PX4 is the news of the migration from Pixhawk to the more universal ROS 2 (robot operating system). With this move, integrating companion computers with industry-standard middleware will be enabled, which is rapidly growing in importance due to vision-based obstacle avoidance and navigation requirements by enterprise users. Nevertheless, there are, however, many other players in the space, and numerous challenges remain to establish a standard OS for UASs, as seen in the dramatic collapse of the well-funded Airware, which burned through USD118mn before crashing in late 2018.

New UAV

New UAVs, new applications

With the maturation of the aerial robotics business, we are seeing the UASs, use cases, and systems evolve into myriad forms. The new use cases and businesses emerging are just the start of the aerial robotics businesses’ emergence out of its primordial ooze and are already improving existing business processes, creating entirely new businesses, and with this will come second and third order impacts which will resonate through almost every existing business, accelerating and transforming those who embrace the technology, and driving those who are slow to adapt to the dustbin of history, while simultaneously giving rise to previously unimaginable new businesses and with them new fortunes.

Looking at the energy sector, one example from the show is senseFly, a subsidiary of French consumer electronics company and UAV manufacturer Parrot (OTCPK:PAOTF). This year, the company introduced its Solar 360 fixed-wing UAV, based on the eBee X platform and created in collaboration with the US software company Raptor Maps. The new system enables the automated rapid inspection of solar farms at a sub-modular level. The system was created by combining the eBee X fixed-wing UAV with senseFly’s Duet T thermal mapping camera and Raptor Maps software. The system is easily integrated into existing solar management systems and does not require UAV piloting skills or the manual analysis of aerial solar farm data. The partnership with Raptor accelerates the solar farm inspection process and cuts the time required from days to hours, enabling the inspection of utility-scale solar farms quickly, easily, and accurately.

Ag drone

Emerging opportunities in unmanned systems Regulatory environment drive development of AI systems for UAVs

While much work remains to improve regulations, panel participants on the UAS Integration Pilot Program believe significant progress has been made over the past year on establishing rules for BVLOS, flying over people, night flight, and unmanned traffic management systems.

In AI-assisted collision-avoidance systems, San Francisco’s Iris Automation demonstrated Casia, a turnkey collision-avoidance system designed for the commercial UAV industry. The computer vision detect-and-avoid (DAA) system enables BVLOS operations for UAVs, overcoming a key regulatory hurdle for commercial operations in the US and elsewhere. Casia detects other aircraft, uses machine learning (ML) to classify them, determines the threat posed to the vehicle, and triggers maneuvers to avoid collisions. The system does this through lightweight, low-power hardware and software, includes a supercomputer with AI algorithms and a machine vision camera. Casia unlocks BVLOS flight, which allows operators to use their aircraft in an expanding number of scenarios.

AI and ML advances are driving the greater use of aerial robots in commercial, industrial, and defense applications, not just the UAVs themselves, but as increasingly creative ways to help humans in dirty or dangerous situations. But crucial to the growth of the UAV industry is public acceptance. To this end, public relations and marketing communications efforts are crucial, not just for acceptance, but to demonstrate to the public the value of UAVs.

AI Drone

Urban Air Mobility and 5G

Consensus among the participants was that 5G is another technology that will accelerate the widespread deployment of autonomous systems. 5G will augment almost every robotic solution. Before the advent of 5G, the robotics sector utilized wired networks, which includes Ethernet, TSN (Time Sensitive Network), and SCADA (Supervisory Control and Data Acquisition). These technologies are unlikely to be of use when swarms of robots operate outdoors in agriculture, mining, and last-mile logistics. In Korea, the first-mover advantage gained by its early launch and the subsequent focus on the rapid development of a 5G infrastructure by companies such as KT (KT), LG U+, and others should ensure that forward-thinking Korean companies enjoy the enviable position of leveraging 5G technology to deploy AVs, UAVs, and other robots on a massive scale. This wide technological moat coupled with a cultural proclivity for the early adoption of new technologies puts Korean businesses in a position to leapfrog competitors in the autonomous economy.

Although the majority of the companies at the event were from the large UAS industry (e.g. Boeing (BA) and Lockheed Martin (LMT)) showing fixed-wing unmanned aircraft, small UAV makers are now taking a larger portion of the show. The Bell booth had large crowds gathered around its prototype of the Bell Nexus, its unmanned air taxi which it unveiled with Uber (UBER) at CES 2019. Bell said that it plans to launch commercial passenger services by the middle of the next decade. The Nexus air taxi was one the most popular exhibits on the show floor, probably because of its size and how it helped to stimulate visitors’ imaginations as to where aerial robotics technology is heading in the near future. The key question, however, is how such systems will be enabled. The prevailing view is that connectivity and 5G are key for UAV operational models, and the infrastructure for this is being deployed at scale in several developed countries, with Korea as one of the leaders. With the advent and deployment of 5G in developed markets, companies positioning themselves to create and capture the tremendous value that will be generated will reap massive gains. That said, scaling operational control demands connectivity, and the maturation of 5G and robotic internet of things (RIoT) ecosystems will help shape how industries utilize and capitalize on aerial robotics technologies.

Bell Uber air taxi

Movement to non-Chinese UAV makers taking off

More government agencies and companies sourcing alternatives

What initially began with warnings to branches of the US military and then the militaries of allied nations such as Australia is now increasingly an issue with more organizations around the world. In our meetings, we learned that more companies and governments are finding alternatives to Chinese UAS offerings due to security concerns. According to media reports, the US Department of Homeland Security (DHS) advised US companies to “be aware of whether your UAS data is being stored by the vendor or other third parties. If it is being stored, find out how, where and for how long.” Another agency, the US Cybersecurity and Infrastructure Security Agency’s (CISA) recently released an industry alert providing organizations with information related to the inherent risks associated with using UAS technology manufactured in China as well.

With the current trade war between the US and China and the growing concern about data security, we believe this will be an ongoing issue for the foreseeable future. With the accelerating shift towards an autonomous economy, which will be dependent on cloud and fog computing infrastructure comes growing security concerns, particularly in terms of risks arising from mobile robots and other autonomous vehicles operating freely in densely populated areas. Because of this, many companies are moving aggressively to capitalize on the opportunity. Some notables include France’s Parrot and Switzerland’s Auterion, both of which have recently started working with the US government on projects. We believe Korean companies are in a favorable position to capitalize benefit from this trend as well. In particular, we see Samsung Electronics, LG Electronics, Foosung subsidiary, Foosung Uconsystem, and Doosan Group subsidiary Doosan Mobility Innovation.

Investments in fog and cloud computing accelerating

Fog and cloud computing are critical points in the autonomous economy as robotics are migrating to the cloud. With cloud robotics, robots are able to utilize remote computing, storage, and data resources to deliver improvements based on AI models. These improvements relate to knowledge representation, machine vision, natural language processing, or autonomous localization and navigation.

Cloud robotics solutions have been slow in gaining traction, due to security concerns as well as safety issues due to latency. With the potential security risks that Chinese companies pose to infrastructure and other areas, we believe that many governments and companies will look for other solutions due to the strategic risk. With cloud solutions, economies of scale are critical. The investment of remote computing and storage resources will start to make economic sense once large fleets of robots are using those resources.

FOG applications Cloud and Fog

The race for UAV delivery services is officially on

Alphabet’s UAV delivery service cleared for takeoff

Despite Amazon’s (AMZN) high-profile, long-planned UAV delivery services, and what can also be seen as an escalation of the growing feud between two tech giants, Alphabet beat the e-commerce titan in the race to be the first company to obtain regulatory clearance for commercial UAV deliveries in the US. Wing Aviation LLC, an offshoot of Alphabet Inc., is the first UAV operator to secure regulatory approval as an airline, a crucial step that enables it to begin delivering products to real-world customers.

Wing now possesses the same certifications that small airlines receive from the US FAA and DOT. The company will deliver consumer items in the US state of Virginia. As UAVs flying over homes is new to the public, Wing will engage in aggressive PR activities ahead of the hard launch. The delivery UAV uses video to assist with navigation, but Wing claims that it does not store the images and only uses them for analysis purposes.

WING UAV

As the FAA and Wing have resolved many of the issues of rules for UAV companies, other UAV companies applying for certification will now be able to move more quickly. The approval marks the start of a period of growth for the aerial robotics industry as a whole, and it will help to drive overall growth. Wing’s UAV is a vertical takeoff and landing (VTOL) vehicle, which means it can lift off vertically and fly horizontally. The UAV carries packages in a cargo hold, can pick up packages, flies to designated destinations, and lowers packages to the ground with a tether. Wing UAVs map the best route to a designated location using the company’s UAS traffic management system, which manages the UAVs’ flight path from takeoff to landing, making sure they plan routes of all obstacles. The FAA’s approval demonstrates the rapid maturation of aerial robotics technology.

Amazon UAV

Shortly after Wing’s announcement, Amazon announced that it has received FAA approval to begin using its latest VTOL UAV for commercial deliveries within 2019. The new Amazon UAV is equipped with an array of sensors, uses computer vision and ML to avoid people and other obstacles when flying or landing. The company claims that the UAV can fly 15 miles, deliver in 30 minutes, and carry merchandise that weighs up to five pounds. While this is far from practical, cost-effective, or impressive, it is, nevertheless a giant leap in terms of accelerating the development of the technology ecosystem and gaining public acceptance of autonomous aerial robots carrying out logistics operations for enterprise.

And Wing and Amazon are not alone in the aerial robot logistics game, Walmart (WMT) has more patents filed for UAV technologies than Amazon, clearly showing that it is preparing for the autonomous economy and to be a formidable player in the space.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Hyundai Motor Company is a passive shareholder in our bank.