Tech giants start by disassembling systems

Chapter 98 Blue Ocean

In the early morning of May 2020, 2.

Su Chen was still in his office.

A table was displayed on the table. It listed the core components required for the integration of large commercial drones: airframe structure, motors and ESCs, gimbal, image transmission system, battery, and flight controller. Six core components.

Hongyuan currently has flight control systems.

The remaining five core components need to be purchased externally or integrated by third parties.

He added a column to the right of the table: Potential Suppliers/Acquisition Candidates.

Organizational structure: Two in Dongguan, one in Shenzhen, and one in Wuxi.

Motors and ESCs: One in Shenzhen (specialized drones), one in Guangzhou (transitioning to automotive motors), and one in Chengdu (downstream aerospace-grade products).

Gimbals: Two in Shenzhen and one in Shanghai.

Image transmission systems: one in Shenzhen, one in Xi'an (originally for downstream defense applications, but now for civilian use), and one in Chengdu.

Battery suppliers: one in Shenzhen (downstream of ATL's supply chain) and one in CATL.

After listing the data, he stared at the table for a long time. Millions of units were being integrated into the product ecosystem. The unit price was in the hundreds of millions. The gross profit per unit ranged from several thousand to tens of thousands of yuan. The path to entering this market was clear—acquire or deeply integrate with a company that already possessed significant integration capabilities.

But Su Chen was still thinking about something else.

Let's assume Hongyuan successfully acquires an integrator and integrates its own flight control system. Hongyuan then has a product in the high-end market.

What did Hongyuan rely on to truly win?

Airframe – any integrator can make it. Motors – can be sourced from multiple suppliers. Gimbal – highly competitive in the industry. Image transmission – also quite competitive. Battery – standard product. Flight controller – Hongyuan's strength, but this advantage will diminish after platformization.

In other words, if Hongyuan is simply "selling out a set of commercial drones"—they are not fundamentally different from other integrators already in the market. Hongyuan either needs to rely on its brand (built in one to two years) or on price wars (but high-end market users are not as price-sensitive as consumer users).

Hongyuan needs a unique component or capability.

He drew a line below the table. Below that, he wrote a single word: vest.

What is a pseudonym?

A "vest" is something competitors don't have, and the reason they don't isn't because they "can't make it"—it's because "for some reason they can't get in." This kind of component or capability is the real moat.

He looked at the word "vest".

He began to mentally analyze the potential "disguised" sectors within the high-end commercial drone industry.

After flipping through the pages, he stopped at one word.

Low altitude communications.

Drones can fly. Therefore, drones need to communicate with the ground. In consumer-grade drones, this communication is primarily based on open-band digital image transmission and Wi-Fi positioning via 2.4GHz/5.8GHz. Consumer-grade drones do not require professional-grade reliability.

However, in commercial large drone applications such as inspection, emergency response, logistics, and military/police scenarios, communication is a matter of electrical engineering. In particular, some industries have stringent requirements regarding data transmission, frequency band security, signal coverage, and interference resistance.

There are three mainstream communication solutions for industrial-grade drones internationally: for general scenarios, commercial Wi-Fi is used to enhance the ground module; for advanced scenarios, LTE or dedicated wireless links are used; and for the most advanced scenarios, satellite communication is used.

The state of this field has changed in the last year or two.

As a reborn individual, Su Chen knew one thing for the next five years: a dedicated communication standard used by a certain domestic ministry for the regulation of low-altitude airspace would enter the formal pilot phase in the second half of this year. This standard's compatibility with mainstream international platforms was partial. This meant that mainstream commercial drone communication modules from abroad would become ineffective or require recertification when used domestically.

There are already foreign suppliers – either they are unwilling to make special modifications according to domestic standards, or they are not capable of doing so, or they are considered unsafe suppliers in the midst of international political friction.

Domestic integrators are not responding adequately. DJI is developing drones but not prioritizing them (their main sales focus is the international market; domestic communication standards are not a priority for them). Other second-tier drone companies are planning to follow DJI's lead—waiting for it to make its move.

Then a blank space was left in the middle.

This gap is actually a blue ocean market. Major domestic telecom operators, emergency response systems, and specialized units will need low-altitude communication modules that meet domestic standards over the next three to five years. No one is providing them.

Su Chen drew a circle on the paper. Inside the circle, he wrote: Low-altitude dedicated communication module (working name: H-Link).

This module is neither a "consumer-grade module" nor a "quasi-commercial module." It is a dedicated communication module designed for specific domestic certifications, frequency bands, and application scenarios. It's not a simple redesign of the F4 modules—it's a complete redesign starting from RF simulation and frequency planning.

Hongyuan can't make this right now.

But Hongyuan can start preparing now. They'll recruit two batches of RF and communication engineers, one new and one old, from AVIC Research Institute. Su Chen himself will begin learning RF fundamentals (like he learned IMU technology last year). This is something that requires two years to produce a prototype and three years to commercialize.

However, if this is completed within the next 5 years, Hongyuan will become the only supplier in China that provides complete solutions for the certification and communication of large commercial drones.

This position isn't in a business with revenues of one or two hundred million. It's about industry scheduling and positioning.

Su Chen carefully put away the forms and papers.

He made a phone call to Xu Lang.

"Mr. Xu, there's an unnamed project I'd like to launch: a low-altitude dedicated communication module. It's scheduled for next April according to the outline. Do you know any prominent radio frequency teams from AVIC Research Institute?"

Xu Lang paused for two seconds on the other end of the phone.

"Yes. I'll send you the list later. I've never heard you mention this project before—what's the basis for that judgment?"

"A domestic ministry will launch a pilot program in the second half of the year to develop low-altitude communication standards for commercial drones. Many foreign suppliers will withdraw from the commercial drone market. There's no domestic industry left. It's a blue ocean market."

Xu Lang didn't ask any more questions. He simply said, "Okay. I'll give you a list tomorrow."

Su Chen hung up the phone. He looked out the window.

It's 2 a.m. in Shenzhen. Outside the window in Longhua, it's as quiet as a frozen sea of ​​orange lights.

He drew another line on the paper on the table. Above the line was "Integrator Acquisition." Below the line was "H-Link Project."

Both are being implemented in parallel. Together, they are building a high-end wall.