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Military Drone

Investors looking to jump into the drone space are well-advised to keep up on what’s happening in the military drone sales space. According to The Wall Street Journal, public companies that sell military drones or components face a new and growing problem – Chinese competition.

Thanks to U.S. government regulations banning the sale of U.S. made drones to many countries around the world, Chinese manufacturers have stepped into the void – some say with a vengeance.


U.S. Policy

It has long been U.S. policy not to sell the most powerful U.S. made drones to other countries for fear they might fall into hostile hands. Efforts to forge a global “drone code” that would allow sales overseas have largely been unsuccessful. As a result, China has stepped into the void left by lack of U.S. sales with what some say are knockoffs of U.S. drones at bargain-basement prices.

The Trump White House National Security Council (NSC) is reviewing regulations to determine if there is room to expand drone sales without hurting U.S. strategic interests. In short, the government doesn’t want to allow drones to be sold to countries that might try to use them against U.S. forces.

The China Problem

China has gone from selling cheap low-tech weapons to poor countries to marketing sophisticated armament including stealth fighters and drones to countries like Iraq, Saudi Arabia, Egypt and the U.A.E. The country began exporting strike-enabled drones in 2014.

This makes China the world’s third-biggest arms seller behind the U.S. and Russia. A large part of the reason for China’s newfound stature has been sales of armed drones. According to the Stockholm International Peace Research Institute, “China faces little competition for sale of such systems, as most countries that produce them are restricted in selling the technology.”


U.S. Players Impacted

With the Pentagon estimating that China could export as many as 42,000 aerial drones by 2023, the impact on U.S. drone manufacturing and sales stands to be significant. Companies with interest in the military drone space include AeroVironment (NASDAQ:AVAVC), Ambarella (NASDAQ:AMBAD) and Boeing (NYSE:BAC).

Both Boeing and AeroVironment are considered significant makers of military drones. Boeing is most well-known for its ScanEagle drone, used in the rescue of MV Maersk Alabama's Captain Phillips in 2009. AeroVironment is a big drone maker for the military having sold tens of thousands of drones to the Pentagon over past decades.

Another company, Ambarella AMBA] is known as a manufacturer of chips for GoPro’s (TSX:GPROC)’s action cameras. The company also makes video-processing chips for drone-makers, including the world’s largest drone manufacturer, China’s DJI.

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