AeroVironment SWOT and Financial Analysis

Products and Services

AeroVironment, Inc. is a California based company specializing in the production of technology products. The company is most famous for designing a series of solar-powered and human-powered vehicles. Its products are categorized into unmanned aircraft systems, EV charging solutions, industrial electrical vehicle (EV) systems, power cycling and testing systems, and engineering services.

The company also owns other strategic subsidiaries to enable it to meet its objective of creating and delivering powerful, durable and efficient technology products. For instance, it owns Skytower, Inc., which develops technologies and government approvals to be used as high altitude atmospheric satellites or communication platforms. The subsidiary, in partnership with the Japan Ministry of Telecommunications and the National Aeronautics and Space Administration (NASA), has also designed and tested the concept of “atmospheric satellite” without time delays. Such strategic partnerships with other companies and government agencies put AeroVironment in a strategic position, which allows the company to access and be involved in future technological initiatives.

The Unmanned Aircraft Systems (UAS) are considered the first true small UAS used by the military. They are hailed for supporting the U.S. and allied Armed Forces in difficult tasks such as “monitoring forest fires and penetrating and analyzing volcanic plumes.” The company’s products continue to set explore and prove what small UAS can accomplish in challenging settings (AeroVironment. (2013a).

AeroVironment’s industrial EV charging products are designed to ensure that customers’ keep their vehicles charged and ready for service. The PosiCharge brand features a broad range of products designed to make customer’s batteries last long and do so at an optimum cost to their operation. The universality of the PosiCharge brand makes it unique and gives it a strategic advantage over other products in the market. For example, the higher output lines, which include the 2500 series, enables customers to mix chargers so that they can use any of the company’s model without worrying about damage (AeroVironment, 2009a).

The company’s electric car solutions also put its name at an advantaged position in the technology industry. AeroVironment offers simple and practical solutions for everyday drivers through chargers that can be used at home, workplace or business. Their charging stations deliver tomorrow’s solutions today, keeping the business ahead of their competitors.

AeroVironment’s custom engineering solutions is the foundation upon which the company’s key developments have been built on since the company came into existence. Its innovative electrical energy technologies pioneer solutions to seemingly unachievable technical objectives. The diversity of the industries the company offers solutions to keeps the business relevant, and it allows it an opportunity to expand its markets.

Other solutions offered by AeroVironment include the power cycling and test systems. The company highly invests in research and development of advanced transportation, power, and energy storage products. The company has also in the recent past paid a lot f attention into clean technology solutions, which makes its products attractive to environment sensitive companies.

In military applications, AeroVironment’s systems enable the military to identify intersections and the next corners in real-time. This allows the team to have faster and safer maneuvers through urban and rugged environments and allows the troops to act on real-time intelligence as opposed to reacting to unanticipated attacks (Yenne, 2004). Moreover, the small UAS allow the military to tailor accurate responses to threats. The systems are portable, and easy to assemble and operate all to the advantage of warfighters. The low cost further makes it possible and practical for the military to deploy the systems directly.

Target Markets by Market Segment

AeroVironment targets different markets for different products. Its biggest market for its UAS products is the U.S. Department of Defense (DoD) and allied forces. Its four products in this category – Puma AE, Raven, Wasp and Dragon Eye – have won each of the four U.S. Department of Defense competitions for inventions of record in the small UAS (AeroVironment, 2013a). Most of the company’s PosiCharge fast charge systems are sold to commercial customers. Its Energy Technology Center generates revenue for not only the commercial clients, but also the government. According to AeroVironment (2009b), during the fiscal year ended April 30, 2009, 43% of the company’s sales were made to the U.S. Army pursuant under a contract by the U.S. army and other organizations within the DoD. Other government subcontractors and agencies accounted for 38% of their sales revenues during the same period. Only 19% of business came from foreign and commercial customers.

The company’s marketing strategy is to increase awareness of its brands among its key target market segments. Its sales and marketing department also designs strategies that associate the company with innovation, agility, flexibility, and a reputation centered on delivering new technology solutions that improve operational efficiency and effectiveness for clients. AeroVironment’s reputation for innovation is a crucial component of the company’s brand, and it has earned the company a variety of awards and recognition.

In addition, the company organizes its U.S. small UAS business development team members by product type and customer, and it has team members in locations close to the clientele they support. AeroViroment also invests in training their program managers who support business development team members by focusing on contract fulfillment, designing optimal solutions and using users’ feedback to plan and internalize appropriate design changes. The company is then able to enhance relationships and improve their product offerings by maintaining constant contact with customers through feedback.

SWOT analysis

Strengths

AeroVironment’s proven business knowledge, relevant skills and experience in the technology solutions industry are a key strength. The National Academy of Engineering (2002) identifies the company as one of the frontiers of engineering and innovations. The company has cut a niche in the market by designing simple-to-use and portable equipment to be used by the department of defense. For example, its UAS can be assembled in less than five minutes without tools. They can also be operated by one person without expertise training required. This places the company at an advantage to keep serving the military and allied forces, which provides a big stable market for the company.

AeroVironment’s level of technology, research and development, further enables it to attract and retain the best talent in the market and has established its reputation as an admirable innovator in the industry. Three quarters of the company’s workforce is in the development and engineering department. This proves the amount of importance the company places on innovation and development, in order to retain its position in the market.

Weaknesses

An increasingly competitive industry can threaten the company’s position in the market without a proper strategy. The principal competitive factors in the market for AeroVironment’s products include features, lifetime operating cost, ease of operability, quality, integration with existing technologies, reputation, and maintenance. Other UAS manufacturers include Elbit Systems Ltd. and Lockheed Martin Corporation. The biggest competitors of the PosiCharge fast charge systems include PowerDesigners, LLC and Aker Wade Power Technologies LLC. The needs and expectations of the market require a constant evolution of products which can be difficult to sustain.

AeroVironment’s production arrangements can also work to its disadvantage without a proper supply chain mechanism. The company outsources some of its production services such as the manufacture of subassemblies, fabrication of structures and other processes. It then only focuses on the final assembly and testing of the final product. Such a plan can inconvenience production when sub-contracted companies are inconsistent or when they fail to deliver on time. Working with multiple suppliers for certain components can also comprise quality and make it difficult to achieve consistency.

Opportunities

The growing demand for sophisticated technology in intelligence and energy industries offer the company a much-needed market. The increased use of AeroVironment’s small UAS in the U.S. military boost other allied countries’ confidence in the company’s products, and catalyses increased demand. As this happens, the company then has an opportunity to pursue new applications and create non-military opportunities. It will also help the company in its quest to penetrate existing and new markets in North America and globally.

The availability of federal funding for defense procurement also allows the company to invest more in research and development, as well as be able to deliver big tenders without many financial difficulties. The general economic and business conditions in the U.S. lean towards the positive as the economy recovers from the recent recession. AeroVironment is currently the currently prime contractor and sole provider of small UAS under the programs of record initiated and established by the department of defense.

Threats

Due to the fact that AeroVironment contracts with DoD and other agencies of the federal government, the company is under extensive regulations, including the Defense Federal Acquisitions Regulations, False Claims Act, Federal Acquisition Regulations, and other regulations under the security guidelines for classified programs (Dalamagkidis, Valavanis & Piegl, 2012). Some of the regulations carry substantial penalty provision, including fines and debarment from federal contracting.

Considering the level of accuracy required in the company’s products, especially military applications, the company spends extensively in research and development. This threatens the company’s ability to launch products as fast as they would wish. Uncertainty in significant operating costs, including raw materials, cost of production and components also threatens the company’s profitability.

Financial Analysis

AeroVironment’s fiscal year ended April 30, 2013 revealed significant changes in several areas compared to the fiscal year ending the same period 2012. The company’s revenue for the fiscal year ended April 30, 2013 totaled to $240.2 million, a decrease of $84.9 percent million from $325 trillion recorded in the same period 2012. The share price has also been on a downward trend in the last one year, decreasing from a high of $31.87 to $23.18 in the fourth quarters of the fiscal years ended April 30, 2013 and 2012, respectively (AeroVironment, 2013b). The cost of sale also dropped by 25% from $195.7 trillion in the fiscal year ended April 30, 2012 to $147.6 trillion in the fiscal year ended April 30, 2013.

The company’s assets to liabilities ratio remained at one in the years ending April 30, 2012 and 2013. Its gross margin decreased by 28% or $36.8 million from 129.3 trillion in the fiscal year ended April 30, 2012 to $92.5 trillion in 2013. As a percentage of revenue, AeroVironment’s gross margins dropped from 40% to 39% in the same period. The gross margins for UAS particularly, the company’s major product, fell from 42 to 41 percent.

Interest income was on the increase from $0.7 million during the fiscal year ended April 30, 2013 from $0.5 million in 2012. Other income sharply rose from $0 in the fiscal year ending April 30, 2013 to $6.2 million in the year ended same date 2013. The $ 6.2 million is primarily attributed to a $ 6.2 million change in the conversion value of the company’s investment in convertible bonds (AeroVironment, 2013b).

References

AeroVironment. (2009a). What sets us apart? Retrieved from http://www.avinc.com/downloads/PosiWhatSetsUsApart_1109_final_Mres.pdf

AeroVironment. (2009b). 2009 annual report. Retrieved from http://files.shareholder.com/downloads/AVAV/2710998251x0x345613/B221F419-77D8-41B2-8D64-C1EAE04CD945/Request-AVAVAnnual_Report_09.pdf

AeroVironment. (2013a). The future is unmanned. Retrieved from http://www.avinc.com/uas/

AeroVironment. (2013b). 2013 annual report. Retrieved from http://files.shareholder.com/downloads/AVAV/2710998251x0x689610/64a02694-064d-466 3-b5fc-46c4877481d4/AV_2013AnnualReport.pdf

Dalamagkidis, K., Valavanis, K., & Piegl, L. A. (2012). On integrating unmanned aircraft systems into the National Airspace System: Issues, challenges, operational restrictions, certification, and recommendations. Dordrecht: Springer Science+Business Media B.V.

National Academy of Engineering. (2002). 7th annual symposium on frontiers of engineering. Washington D.C.: National Academy of Engineering.

Yenne, B. (2004). Attack of the drones: A history of unmanned aerial combat. St.Paul, MN: Zenith Press.