Tech giants start by disassembling systems

Chapter 97 High-end

The platform issue was settled. But Su Chen knew that the platform was still not enough.

He stayed in the office alone after the meeting.

The Flying Bird Project is expected to generate 500 million in annual revenue. Adding the F4/F5 consumer-grade and plant protection-grade SDK alliances, the industrial-grade Southern Power Grid contracts, and subsequent clients, Hongyuan's future revenue in 2020 could be between 600 million and 700 million.

This number is already considered very large in the drone industry.

But he was thinking about something else.

Of the 700 million in revenue, the profit margin is approximately 25%. The annual profit is about 170 to 180 million. After deducting reinvestment in R&D and operational expansion, the actual free cash flow is about 100 million.

Annual free cash flow of 100 million.

One thing he'd been thinking about all year was acquiring a controlling stake in MicroSense. MicroSense is currently valued at 250 million. A controlling stake of at least 51% would be needed, which is approximately 120 million. In a sense, the cash flow from the Flying Bird Project over the next year or two could support this acquisition.

But he didn't want to wait a year or two.

He walked to the window. The Shenzhen night view was visible outside.

To accelerate growth, we need to enter truly high-value-added markets. What are the high-value-added markets in the drone industry?

He listed it in his notebook.

First, large-scale drone logistics. Multi-rotor drones with a payload capacity of over 50 kg or fixed-wing drones for medium-range logistics. The price per unit ranges from 400,000 to 1.5 million RMB. Clients include large logistics companies such as SF Express, JD.com, and ZTO Express.

Second, emergency drones. Used for firefighting, maritime disaster relief, coast guard, and police operations. The price per unit ranges from 200,000 to 2 million yuan. Clients include the National Fire and Rescue Bureau and provincial disaster relief management bureaus.

Third, substation and large-scale infrastructure inspection. This includes power stations, dams, bridges, and high-speed rail lines. The unit price ranges from 160,000 to 900,000 yuan. Clients include: China Southern Power Grid Smart (already signed) and similar power grid subsidiaries, the Ministry of Water Resources, and the China Railway Corporation.

Fourth, for military and police use only. Military, armed police, and special forces units. Unit price ranges from 200,000 to 4 million. Clients: Procurement and command centers for various military, police, and commercial purposes.

These four scenarios share a common characteristic: their per-unit gross profit margin is significantly higher than that of consumer-grade products. The profit per unit ranges from several thousand to tens of thousands of yuan. This contrasts sharply with the F4's profit of just over eight hundred yuan per unit.

However, these scenarios are not currently within Hongyuan's purview. The reason is simple—the technical barriers to these scenarios are much higher than those for consumer-grade applications. They require not only flight control systems, but also: high-load motors and ESCs, large-capacity batteries, stable image transmission, professional-grade gimbals, heavy-load tracking, and project management capabilities.

Hongyuan doesn't handle most of these steps.

Taken together, entering the high-end market requires not "making individual drones," but "integrating an entire component system."

Su Chen drew a character on the paper: Integration.

This is something Hongyuan has never done before. For the past three and a half years, Hongyuan has been focusing on vertical capabilities centered on flight control. This is fragmented, in-depth, but with clear boundaries.

Entering the high-end market means that Hongyuan needs to utilize different organizational capabilities.

He considered two paths.

The first option: Hongyuan would do the entire system integration from scratch. That would require three to five years and an investment of at least 200 million yuan. Theoretically feasible, but the time cost is unacceptable.

The second option is to acquire or take a controlling stake in a company that already possesses distributed integration capabilities. This involves integrating their airframe, motors, gimbals, image transmission systems, and Hongyuan's flight control system. The acquisition cost would be approximately 300 to 800 million RMB, but the timeframe could be reduced to within one year.

The second approach is more suitable for Hongyuan at this stage.

Su Chen wrote on the paper: Conditions for the acquisition target. 1. More than five years of experience in the commercial integration of commercially available payload drones or multi-rotor drones. 2. Has independently produced at least two components: motors, gimbals, and image transmission systems. 3. Currently lacks self-developed flight control systems, or has weak flight control capabilities (to ensure Hongyuan Flight Control's core position). 4. Valuation within 800 million.

These four conditions narrowed down the scope of acquisition targets. There are approximately eight to twelve commercial system integrators in China that meet these four conditions.

Su Chen finalized the starting point for this list. The detailed list will be provided by Xu Lang tomorrow. Xu Lang has worked at Haotai for eight years. His main job is inspecting, evaluating, and dealing with this type of company.

He added the last line to the document:

"The first major transaction of the third three-year period – the acquisition of a controlling stake in the first commercial system integrator completed in Q2 2020."

He stared at those words for a long time.

For the past three and a half years, he has been focusing on organic growth and strategic partnerships. Hongyuan is an intensive and specialized company. Acquisitions mean a completely different possibility. Collaboration, cultural integration, and personnel resources are crucial. In his previous life, he had witnessed too many companies collapse due to improper integration after acquisitions.

But this step is necessary for the second three years. Hongyuan can't rely solely on flight control platforms forever. Flight control platforms are a basic necessity. High-end integration will enhance capital returns and industry influence.

He closed the document.

The night in Shenzhen is deep outside the window. The bottom of Longhua District is almost completely submerged.

It was nearly midnight. He walked to the window. It was empty and cold outside.

The first quarter of 2020.

Hongyuan has entered a new phase.

From a single line to three lines. From three lines to platformization. From platformization to moving into the high-end integration market. Four stages. The logic of each stage is different from the previous one, but the direction is the same.

Flight control.

It's always the flight control system.

The core of the open platform module is the flight control system. One of the conditions for acquiring an integrator is that the acquirer cannot have complete self-developed flight control capabilities. The core of the F5 remains the flight control system.

Three and a half years ago, he watched Zhou Ming holding that board in the leaky workshop. The initial flight control decision was made that day. That day—in a small, dying factory—was the source of everything.

He drew the curtains. He returned to the table. On the white paper on the table was another circle drawn. Inside the circle were two words:

integrated.

Outside the circle is a new large character: High-end.

This is the first real "wall" in the second three years.

But he had already built a ladder over one wall.