DJI – Pawn sacrifice.

Another pawn is thrust into the fray.

• DJI is becoming another pawn in the long and drawn-out stand-off between the USA and China meaning that the merits of the USA’s move to ban it are irrelevant and where only a trade deal will restore its sales.
• It looks like the USA is about to put DJI on a similar blacklist to Huawei and ban all government-financed agencies from purchasing DJI drones.
• The real market for drones is to be found in the enterprise and with state agencies meaning that being blocked in the largest market for its products is going to hit the company hard.
• I suspect that being banned by the USA will also hurt sales to US enterprises and potentially even the consumer.
• DJI is unique for a Chinese company as not only does it make the best drone hardware, but it is also the industry leader when it comes to software.
• This is extremely unusual because typically, Chinese companies can make good hardware but really struggle with software.
• The Chinese smartphone industry’s dependence on Google and Huawei’s chequered history with Cisco and other mobile infrastructure makers is a clear demonstration of this fact.
• The American Security Drone Act of 2019 has bi-partisan support demonstrating that the only issue which unites American politics at the moment is the need to contain China’s rise.
• This is further evidence to support RFM and Alavan Independent’s assertion that the battle between the USA and China will continue beyond both a change at the White House and any trade deal (see here).
• This is bad news for DJI because, like Huawei, it is something of a national champion, having conquered a global market all by itself.
• Consequently, the Chinese state will be keen to see its business flourish as a symbol of how China can lead the world in more than making cheap products.
• Because of this, the USA will use DJI as a bargaining chip (just like Huawei) in order to gain negotiating leverage over China when it comes to striking a trade deal.
• Trade deals can take years to negotiate, especially when they are as thorny as this one meaning that DJI is likely to suffer meaningfully in the interim period.
• DJI has around 74% of the global market for drones and this issue could create an opportunity for other non-Chinese companies to catch up.
• Fortunately for DJI, it is not listed and any hope of going public before this issue is resolved must now be shelved.
• Alastair Newton and I continue to believe that the struggle between China and the USA will continue for many years and may end in future technologies having two incompatible standards leaving other countries being forced to choose between them.
• This has implications for the global economy and the technology sector in general as splitting the market into two pieces will result in a lower overall opportunity.
• The long-term outlook remains very uncertain.
• For more details on the China vs. USA trade war, see RFM and Alavan Independent’s publication of Reality Bytes – Clash of the Titan, 20^th September 2019.