Closing Bell - Manifest Space: John Deere's SpaceX Strategy with Deere CTO Jahmy Hindman 1/16/24

Episode Date: January 17, 2024

John Deere is partnering with SpaceX to use Starlink, its space-based internet service to elevate its digital solutions. The heavy-equipment heavyweight has invested billions of dollars to develop digital products & services for farmers. Starlink will connect agriculture machines to internet in remote, low-connectivity areas. CTO Jahmy Hindman joins Morgan Brennan to discuss the terms of the deal, working with SpaceX and the industry-first deal.

Deere is going to space, and it's tapped Elon Musk's SpaceX to do it. The maker of tractors and combines will use the Starlink network to provide satellite communication service to farmers to, quote, fully leverage precision agriculture technologies in even the most rural of areas. Terms of the deal undisclosed, but the partnership is an industry first. More than a year in the making, spearheaded by Deere's chief technology officer, Jamie Hindman. Yeah, it opens up the world of high-speed connectivity to, you know, the full Deere tech stack for us. And so those are things like the capability to do in-field data sharing of information between two machines that might be working in the same field. It's also the ability

for remote display access, so a farm manager can understand how a machine is operating. And another important point is sort of forecasting the future and where culture, the opportunity associated with autonomy. We think the Starlink solution is really a bedrock solution for us to be able to build an autonomy stack as well. It comes as Deere looks to build out a software services business that's less cyclical than simply making and selling machines. Though the business model for Starlink-enabled connectivity is still to be determined. For SpaceX, it speaks to the Starlink business model,

which at a SpaceX all-hands meeting recently, Elon Musk reiterated. Starlink is supplemental to terrestrial internet. It does not replace it. Starlink does really well for low population density areas, but it is really not going to be competitive in high density cities. It's really low density situations, which is really where the need is. So anyway, works well with other Internet providers is what I'm saying.

Starlink now touts more than 5,000 satellites, millions of users, and a growing list of business customers and partners, including Hawaiian Airlines, Carnival, T-Mobile, and now Deere. On this episode, Deere's CTO rejoins me after our initial discussion last May to discuss this industry-first deal, working with SpaceX, and what space enables for Deere's business on Earth. I'm Morgan Brennan, and this is Manifest Space. Jamie Hindman, CTO of Deere. Thank you so much for joining me. It's great to speak with you about this new news, this industry first deal that you have just announced between Deere and SpaceX's Starlink.

Walk me through it. All right. It's great to be here, Morgan. So thanks for the time. Fundamentally, the deal is all about providing satellite connectivity to our agricultural machines that, as you probably well know, don't always operate in a place where terrestrial cellular connectivity is available. So this closes that gap. We estimate about 30 percent of the acres in the U.S. market, as an example, aren't connected today with cellular connectivity. And about 70 percent of the acres in another important market, Brazil, are't connected today with cellular connectivity. And about 70 percent of the acres

in another important market, Brazil, are not connected. So this solves for that connectivity gap to be able to access all the technology that's available to those farmers that do have cellular connectivity today. You and I spoke last May about this. You had the request for proposal out. You were testing technologies and fielding interest from, I believe it was dozens of satellite communications companies at the time. You put that RFP out in the fall of 2022. So this has been more than a year in the making. Why did you decide on SpaceX? That's a great question. So we narrowed down that list of, you know, 40 or so companies down into just a handful that we carried through what I'll call maybe a beta testing phase

that happened over the last eight to 10 months. And we deployed their hardware and their constellation capabilities into real customer applications over the last eight to 10 months and evaluated the capabilities sort of in the field, so to speak, no pun intended. And SpaceX just topped in terms of capability. Also,

that capability in terms of what the customer experience was like and what value was being created for growers in both the U.S. and Brazilian markets. So what did that capability look like in beta testing for Starlink? What made it so compelling? Yeah, it opens up the world of high-speed connectivity to the full deer tech stack for us. And so those are things like the capability to do infield data sharing of information between two machines that might be working in the same field. It's also the ability for remote display access. So a farm manager can understand how a machine is operating and maybe change the settings on that machine as well. That sort of capability is really important in the here and the now.

And then, Morgan, I think another important point is sort of forecasting the future and where culture, the opportunity associated with autonomy, you know, the labor shortage in rural locations across the globe is problematic, and we view autonomy as a way to help resolve that. Autonomy depends upon a high degree of connectivity. And we just, we think the Starlink solution is really a bedrock solution for us to be able to build an autonomy stack as well.

So in terms of that connectivity, we're talking about older machines as well as new machines. How quickly does this deploy? And what does this mean in terms of the business model around this deal? Yeah, great question. So we're going to start with a relatively small handful of customers in 2024

that we will put the technology on their existing units. And that'll be the strategy for a bit is sort of this field install approach because the population of field units is much larger than what we would produce new on an annual basis. And that's already available on those units once you have connectivity. So we'll start with that field population first and then eventually move it into the new machines that are coming out of the factory. In terms of business model, we're still in the midst of trying to determine what that looks like. That'll be the effort over the next six to eight to 12 months as we experiment

with customers in this pilot phase over the 24, really to determine what the value is that they're seeing in their operations and how we can best create a business model that helps them digest both the hardware and the connection, the data fees associated with the connection and their operations. OK, so it's still to be decided or to a certain extent in terms of what this looks like for your consumers and for your machine, consumers of your machines. What is the partnership? I guess, what does the deal look like with SpaceX?

Because this had been considered and watched closely as perhaps one of the biggest, if not biggest, potentially commercial satellite communications deals or competitions that was out there. So how does that partnership play out? What are the financial agreements around it? Contract specifics in particular, Morgan, but fundamentally what we needed to do was be able to provide a hardware set that would live in the ruggedized environment that we operate in from an agricultural perspective. So Starlink did work with us in order to modify the wear associated with this to be able to run in those difficult, dusty, hot, high-debris agricultural environments. So that was thing one. We needed an organization, a company that was willing to work on a solution that would live in the environments that it was created in. And then second to that, we needed an organization that was capable of moving quickly. And in addition to moving quickly, sort of one of the benefits of Starlink is the vertical integration vis-a-vis SpaceX all the way through their solution set and their solution chain. So they demonstrated the capability fairly quickly within our working relationship with them to solve the problems, the dilemmas that we had,

these beta testing environments, and to solve them quickly. And that gave us a lot of confidence in the solution moving forward. So as the details of all of this and this service offering come together here over the next year plus, what does it mean for Deere and the financials of Deere? And I guess more pointedly, does it smooth out some of the cyclicality we've seen in financial performance

if you start to see more of that revenue come from things like services? I absolutely think more than that. It does a couple things for us. It unlocks the opportunity to send your technology, not new stuff, but existing stuff that just relies upon connectivity, to a new customer base. And that in and of itself, I think, bodes well in the short term to be connected to a broader base of customers. I think it opens up the potential for more of these technology solutions to penetrate the market faster. And for us, yes, that absolutely means it's a helpful lift in damping out the cyclicality

of an otherwise cyclical business. You and I have talked about this before, the fact that Deere has participated in space-based or space-related work for many, many years now. I mean, just thinking about GPS-enabled machines, what does this next level of connectivity enable from a precision agriculture standpoint? What does it unlock? Because I almost think of it as like a 2.0. Yeah, great question. So, you know, we have been connected to space technology for almost 25 years with GNSS. Similar to that step we took 25 years ago, just in the data transmission side of space capability. And that unlock is agronomic data from the farm that helps a grower make better decisions within a growing season. It's logistic data.

It means where are all of the pieces of equipment and all of the important parts of the farm, where are they? Are they operating at full capacity? If not, how can I modify things to improve the efficiency of that system? All of those things, I think, are really, really helpful to creating a more efficient and more effective farm operation in the future. So this partnership, is this going to be exclusive with SpaceX and Starlink, or do you see it as a stepping stone to do more work, more partnerships with others on the space front or other technologies and technological capabilities as they evolve?

If you think of the capabilities of space and where the commercialization of space is and where it's going, really interesting opportunities to do things like higher fidelity earth observation, so crop monitoring from space. We obviously have this opportunity with connectivity that we're talking about today. I think there's continuing to be further opportunity to improve the geosolutions that we have with respect to time. And so I'm bullish on how to have inhabitants of Earth with space technologies from an agricultural industry perspective. Great. Anything else to keep in mind, whether it's about this deal or whether it's about precision agriculture and the tech that you're employing

and enabling at Deere for the future? I think more just important to recognize there's a ton of technology in agriculture. Like this is just the tip of the iceberg, so to speak. It's super exciting for us, no doubt, but it's a great industry to work in and it's a great industry for technology to make a difference. All right, Jamie Hindman, thanks so much for joining me. Appreciate it. Thanks, Morgan. You too. That does it for this episode of Manifest Space.

Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.