AST SpaceMobile, Inc. ASTS is ramping production of its Block 2 BlueBird satellites, with many satellites already in production. It is targeting to launch 45-60 satellites by the end of 2026.
Manufacturing of such complex satellite systems requires critical components such as semiconductors, RF components, aerospace-grade electronics and specialty materials. Even though ASTS sources primarily from the United States and Europe, the broader geopolitical instability is affecting global electronics/aerospace supply chains. Disruptions in the Middle East and the blockade of critical energy supply routes are driving up energy prices. This can lead to rising logistics costs for moving satellite hardware. Suppliers may pass through the rising production costs to ASTS. These factors can hinder its operating margin in the near term.
AST SpaceMobile’s vertically integrated manufacturing strategy mitigates these risks to some extent. The company owns the intellectual property and controls the manufacturing process for approximately 95% of all sub-systems used in its Block 2 BlueBird satellites. The company has also expanded its supplier base to reduce dependence on a single supplier and strengthen its supply chain.
Owning end-to-end manufacturing allows ASTS to stockpile critical inputs earlier and manage procurement timing more proactively. The company is developing two manufacturing facilities in Texas and Florida. The company aims to expand production facilities to over 500,000 square feet globally. However, it is to be noted that vertical integration reduces the risk but does not eliminate risk because it still relies on external vendors for semiconductor and other critical components.
Other Tech Firms Relying on Vertical Integration
Sanmina Corporation SANM offers end-to-end solutions that include product designing, manufacturing, assembling, testing, and aftermarket support. Such an end-to-end approach allows clients to rely on a single partner throughout the product lifecycle management. Sanmina’s vertically integrated manufacturing process brings several other advantages. This approach streamlines processes and lowers costs, enabling Sanmina to achieve greater economies of scale. It significantly accelerates time to market and time to volume production. Vertical integration allows Sanmina to easily develop customized solutions that cater to varied customer specifications operating in multiple sectors.
Major semiconductor company Intel Corporation INTC operates in a vertically integrated setup. Effective first-quarter 2024, Intel implemented an internal foundry operating model, creating a foundry relationship between its product business (collectively CCG, DCAI and NEX) and its foundry business. While Intel Products include the design and development of CPUs and related solutions for third-party customers, Intel Foundry comprises process engineering, manufacturing and foundry services groups that provide manufacturing, test and assembly services to Intel Products business and to third-party customers.
ASTS’ Price Performance, Valuation and Estimates
AST SpaceMobile shares have skyrocketed 307.9% over the past year compared with the industry’s growth of 70.5%.
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From a valuation standpoint, AST SpaceMobile trades at a forward price-to-sales ratio of 110.42, well above the industry average of 5.53.
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The Zacks Consensus Estimate for ASTS’ earnings for 2026 and 2027 has declined over the past 60 days.
Image Source: Zacks Investment Research
AST SpaceMobile currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).