DRONE ZONE

Cal­i­for­nia firms are jump­ing into the com­mer­cial drone busi­ness, but the small un­manned planes are mostly be­ing built out­side the coun­try

Los Angeles Times - - BUSINESS - By W.J. Hen­ni­gan and Melody Petersen

As the largest Amer­i­can maker of con­sumer drones, 3D Ro­bot­ics Inc. sees big op­por­tu­ni­ties in sell­ing mini he­li­copters with cam­eras, sen­sors and whirling pro­pel­lers that buzz like an­gry hor­nets.

The Berke­ley com­pany ex­pects to sell thou­sands of the pizza-sized drones — for about $1,000 each — at home and abroad this year. Tech-savvy cus­tomers want them for cap­tur­ing wave-shred­ding surf­ing runs in the Pa­cific, mon­i­tor­ing oil and gas pipe­lines in re­mote re­gions, and other uses.

3D Ro­bot­ics is out in front of dozens of Cal­i­for­nia com­pa­nies jump­ing into the nascent busi­ness of sell­ing drones to con­sumers and com­mer­cial en­ter­prises, just as com­pa­nies in the state did ear­lier when­the drone mar­ket con­sisted largely of one cus­tomer: the Pen­tagon.

Although mil­i­tary drones were born in South­ern Cal­i­for­nia and are still built here, 3D’s drones will be built out­side the coun­try.

So far, many com­mer­cial and civil­ian drones are be­ing de­signed here but made abroad, cre­at­ing high-tech en­gi­neer­ing jobs in the U.S. while the man­u­fac­tur­ing is in low-cost coun­tries like China and Mex­ico— un­der­scor­ing the chal­lenge of cre­at­ing U.S. man­u­fac­tur­ing jobs.

The epi­cen­ter of the fast-grow­ing com­mer­cial drone busi­ness is in Sil­i­con Val­ley, not South­ern Cal­i­for­nia, and the new play­ers are quite dif­fer­ent from the gi­ant con­trac­tors that dom­i­nate the mil­i­tary drone mar­ket, such as Northrop Grum­man Corp. or Gen­eral Atomics Aero­nau­ti­cal Sys­tems Inc.

They’re more like the clas­sic Sil­i­con Val­ley stereo­type: geeks work­ing in garages.

“The aerospace in­dus­try isn’t rel­e­vant here,” said Chris An­der­son, 3D Ro­bot­ics’ chief ex­ec­u­tive. “What we do is more like a smart­phone with wings rather than a pi­lot and a plane.”

Manyof the com­mer­cial drone com­pa­nies are so new that it’s hard to pre­dict where they will lo­cate man­u­fac­tur­ing op­er­a­tions, but they are un­likely to cre­ate thou­sands of well-pay­ing fac­tory jobs, like the aerospace in­dus­try of a by­gone era.

Com­pe­ti­tion from Chi­nese man­u­fac­tur­ers has al­ready pushed 3D Ro­bot­ics and some other Amer­i­can drone com­pa­nies to make their hard­ware in other coun­tries. An­der­son’s com­pany has an en­gi­neer­ing cen­ter in San Diego, but man­u­fac­tures its drones in Tijuana and Shen­zhen, China, where there is cheap la­bor.

The strat­egy mir­rors that of Ap­ple, which de­signs its iPhones in Cal­i­for­nia but man­u­fac­tures them in China and other coun­tries.

3D Ro­bot­ics’ main com­pe­ti­tion is Chi­nese com­pany SZ DJI Tech­nol­ogy Co., the largest com­mer­cial drone man­u­fac­turer in the world. The firm makes the red-and-white quad­copter called the Phantom, which re­cently gained fame when one landed on the White House lawn.

“We’re Cal­i­for­nia. We’re a high-cost state,” said Colin Snow, a drone in­dus­try an­a­lyst in Red­wood City. “Cap­i­tal goes where it gets the high­est re­turn.”

The mak­ers of mil­i­tary drones also see huge po­ten­tial in com­mer­cial sales.

“We think the com­mer­cial mar­ket has a chance to be much larger,” said Steven Gitlin, a spokesman for AeroViron­ment Inc., the largest sup­plier of small drones to the mil­i­tary.

The com­pany, which makes drones in its Simi Val­ley fa­cil­i­ties, has seen sales decline as the mil­i­tary with drew from Iraq and Afghanistan and is look­ing to com­mer­cial drones for growth.

How fast the drone busi­ness will grow could de­pend on when and how reg­u­la­tions are loos­ened.

It is still il­le­gal to fly a drone for com­mer­cial pur­poses with­out a per­mit. Al­most daily, pi­lots have re­ported drones fly­ing dan­ger­ously close to their air­craft, and the Fed­eral Avi­a­tion Ad­min­is­tra­tion has said its pri­or­ity is keep­ing the na­tion’s skies safe.

While the FAA con­tin­ues to de­bate new rules for the op­er­a­tion of com­mer­cial drones that it pro­posed in Fe­bru­ary, the agency is is­su­ing an in­creas­ing num­ber of per­mits to com­pa­nies that have shown reg­u­la­tors they can fly safely. So far, the FAA has is­sued 548 per­mits, in­clud­ing to com­pa­nies us­ing drones to film com­mer­cials and movies, along with­more industrial tasks.

San Diego Gas& Elec­tric Co. flies drones to help in­spect high-volt­age power lines through­out its net­work. U.S. farm­ers can now use 207-pound Yamaha he­li­copter drones to spray crops with pes­ti­cides — the same aerial spray­ing sys­tem that Ja­panese farm­ers have used for years.

Sales are al­ready climb­ing among hob­by­ists, for­eign users and com­pa­nies that have gained ex­emp­tions to fly. Global sales of drones to con­sumers and com­pa­nies are es­ti­mated to be $4.5 bil­lion this year, up from$3.3 bil­lion last year, ac­cord­ing to Frost& Sul­li­van, amar­ket re­search firm.

Com­mer­cial sales are ex­pected to in­crease so fast that they could sur­pass those to the mil­i­tary in about five years, ac­cord­ing to the firm’s anal­y­sis. By 2020, global con­sumer and com­mer­cial sales could be $11bil­lion, it said.

Sil­i­con Val­ley’s deep­pock­eted ven­ture cap­i­tal­ists are pour­ing cash into drone start-ups. So far this year, ven­ture cap­i­tal­ists have in­vested $172 mil­lion in drone com­pa­nies, ac­cord­ing to CB In­sights. That’s up from$107 mil­lion for all of 2014.

Jon Cal­laghan, CEO of True Ven­tures, an in­vest­ment firm in San Fran­cisco, said his com­pany has pro­vided more than $100 mil­lion in early cap­i­tal for com­pa­nies in­volved with drones.

“Once you see a larger num­ber of th­ese ve­hi­cles al­lowed into U.S. airspace, that will un­lock a huge wave of in­vest­ment,” Cal­laghan said.

North­ern Cal­i­for­nia is the head­quar­ters of six of the 10 Amer­i­can com­mer­cial drone com­pa­nies that have at­tracted the most ven­ture cap­i­tal, ac­cord­ing to CB In­sights. They are cre­at­ing high-pay­ing work for en­gi­neers, in­clud­ing those designing ever more so­phis­ti­cated soft­ware to op­er­ate the ma­chines.

Com­puter en­gi­neers are also work­ing on ap­pli­ca­tions in which drones gather data through cam­eras and sen­sors and turn those data into in­for­ma­tion that farm­ers and other busi­nesses can use to im­prove their op­er­a­tions.

For ex­am­ple, San Fran­cisco start-up DroneDe­ploy has cre­ated soft­ware de­signed to en­able farm­ers to spray or wa­ter their crops more ef­fi­ciently. The sys­tem col­lects data that are used to gen­er­ate real-time maps show­ing where fields may be toowet or dry.

Air­ware, an­other startup in San Fran­cisco, de­vel­ops drone op­er­at­ing sys­tems so cus­tomers can mix and match soft­ware to carry out var­i­ous jobs, such as forestry and agri­cul­ture or sur­vey­ing and map­ping. Air­ware was founded in New­port Beach but moved to San Fran­cisco af­ter see­ing where the in­dus­try was headed.

“Think of us like an In­tel or Win­dows for the in­dus­try,” said Air­ware Chief Ex­ec­u­tive Jonathan Downey. “Drones are used for a wide va­ri­ety of ap­pli­ca­tions, and we­want to en­able this di­ver­si­fi­ca­tion.”

De­vel­op­ers al­ready have cre­ated hun­dreds of kinds of drones in a va­ri­ety of sizes, rang­ing from pocket-sized to one that Face­book is designing to have a wingspan greater than a Boe­ing 737.

3D Ro­bot­ics is among the lead­ers in the fast-grow­ing in­dus­try. Since An­der­son co-founded the com­pany in 2009, its four-pro­pel­ler and six-pro­pel­ler he­li­copters have gone from kids’ toys to high-tech tools.

Be­fore An­der­son was CEO of 3D Ro­bot­ics, he was edi­tor in chief of Wired mag­a­zine. He be­gan build­ing drones with his chil­dren in the mid-2000s and soon started an on­line com­mu­nity called DIY­drones.com.

The com­pany has grown to about 200 em­ploy­ees. Many are en­gi­neers who work on soft­ware, writ­ing com­puter code and solv­ing me­chan­i­cal prob­lems in a work­place familiar to other Sil­i­con Val­ley start-ups: an open floor plan, free of cubicles or of­fices.

3D Ro­bot­ics’ drones can fly on pre-pro­grammed routes and stream back video to users’ smartphones or other de­vices.

The com­pany uses open­source hard­ware and soft­ware, mean­ing it doesn’t patent its tech­nol­ogy and wel­comes garage tin­ker­ers. Cus­tomers of­ten of­fer rec­om­men­da­tions on how to im­prove the tech­nol­ogy.

“In­no­va­tion of­ten comes in the hands of cus­tomers,” An­der­son said.

Peter DaSilva For The Times

“WHAT WE DO is more like a smart­phone with wings rather than a pi­lot and a plane,” says Chris An­der­son, CEO of 3D Ro­bot­ics.

Al Seib Los An­ge­les Times

THE RAVEN, top, and the Global Ob­server are some of the other small drones made by AeroViron­ment.

Al Seib Los An­ge­les Times

THE WASP is held by Cyn­thia Sin­gle­ton-Ni­chols of AeroViron­ment, which makes drones in Simi Val­ley.

Pho­to­graphs by Al Seib Los An­ge­les Times

OS­CAR GON­ZA­LEZ, a test tech­ni­cian at AeroViron­ment in Simi Val­ley, in­spects parts dur­ing as­sem­bly of the Puma AE drone.

AEROVIRON­MENT spokesman Steven Gitlin holds the Qube drone, de­signed for first re­spon­ders. The com­pany is the largest sup­plier of small drones to the mil­i­tary but is look­ing to com­mer­cial drones for growth.

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