Drone game: Chinese giant DJI hit by U.S. tensions, staff defections

SHENZHEN, China (Reuters) – Chinese drone giant DJI Technology Co Ltd has built such a successful business in the United States in the past decade that it has almost driven all competitors out of the market.

Still, its operations in North America have been hit by internal turmoil in the past few weeks and months, with a series of cuts and staff cuts, according to interviews with more than two dozen current and former employees.

The loss of key managers, some of whom have joined rivals, has aggravated the problems caused by the United States government’s restrictions on Chinese companies and raised the previously remote prospect that DJI’s dominance will be eroded, four of the people said, including two senior executives who were at the company by the end of 2020.

About a third of DJI’s team of 200 employees in the region were laid off or fired last year from offices in Palo Alto, Burbank and New York, according to three former employees and one current one.

In February of this year, DJI’s head of R&D in the United States left and the company fired the rest of the R&D team, which numbered around 10 people, at its main research center in the United States in Palo Alto, California, they said. four people.

DJI, founded and run by billionaire Frank Wang, said it made the difficult decision to downsize the team in Palo Alto to reflect the company’s “evolving needs”.

“We thank the employees affected by their contributions and remain committed to our customers and partners,” he said, adding that his sales in North America are growing strongly.

“Despite competing misleading claims, our corporate customers understand how DJI products provide robust data security. Despite gossip from anonymous sources, DJI is committed to serving the North American market. “

The company did not comment on the withdrawals of other US employees that current and former employees spoke of, although it told Reuters last year that its global structure was becoming “difficult to manage”.

DJI, which has become a symbol of Chinese innovation since it was founded in 2006, is one of dozens of companies caught in the crossfire of trade and diplomatic hostilities between Washington and Beijing, such as Huawei and Bytedance.

Team sources and competitors say the company’s brand reach, technical know-how, manufacturing power and sales force mean that it will not lose its crown any time soon in the multibillion-dollar American and global non-military drone markets.

But a December order adding the company to the U.S. Department of Commerce’s “Entity List” along with the closure of its R&D operation in California could affect its ability to meet the needs of US customers, according to three ex- senior executives and two competitors.

The Department of Commerce’s list, promulgated under allegations including DJI-enabled “high-tech surveillance,” prohibits the company from buying or using US technology or components.

In the same month, Romeo Durscher, DJI’s head of public security in the United States, who played a central role in building the company’s business in providing drone technology to US non-military government departments and agencies, left his job.

Durscher, a former NASA project manager and an influential figure in the drone industry, now works at Swiss company Auterion, a competitor of DJI.

He said he left DJI because he was discouraged by the staff cuts and what he described as internal power struggles between the US team and its headquarters in China. He added that the US reorganization complicated the task of dealing with the consequences of US-China tensions and winning government business.

“It is not an easy decision to leave the market leader who is far ahead of everyone else,” said Durscher, who joined DJI in 2014. “But these internal battles were distracting from the real purpose and in 2020 it got worse … we lost tremendous talent at DJI and this is very unfortunate. “

US SECURITY CONCERNS

Privately-held DJI does not publish sales figures. The United States Department of Defense estimated that the US non-military market was worth $ 4.2 billion last year. The consultancy DroneAnalyst said that DJI controlled almost 90% of the consumer market in North America and more than 70% of the industrial market.

The Commerce Department’s December listing and the ban on buying U.S. parts could impact the company’s mobile apps, web servers and some battery and imaging products, said David Benowitz, head of research at DroneAnalyst and a senior figure on the team corporate office of DJI, which works with industrial customers, in Shenzhen before he left last summer.

DJI said in December that the ban would not affect the ability of American customers to buy and use its products.

The list followed other official blows. In October, the U.S. Department of the Interior said it would only buy drones from companies authorized by the Department of Defense, which last August published a list of five approved drone suppliers for the federal government – four Americans and one French.

DJI said that there was “a broad US government ban on buying DJI drones”.

“Congress considered this approach last year and rejected it, because … such a ban would be a challenge for many companies and government agencies that depend on drones,” he added.

‘WE ARE STILL PRIMITIVE’

Benowitz said persistent US-China tensions and pressure from Washington to support DJI’s rivals could lead to the company’s falling market share in North America. He added that while the federal government holds a relatively small share of DJI’s business, its restrictions may have an “inhibiting effect”, with other buyers concerned about tougher measures in the future.

“We are at a point where there are many market opportunities for a player to dominate,” he said.

However, he added that the alternatives to DJI were relatively small, although both political support and security concerns about Chinese drones have brought them growth in the past year. DJI’s competitors include Parrot from France and Skydio, based in California.

Chris Roberts, CEO of Parrot Inc, Americas, said 2020 was a significant year for the company in the United States, having been named an approved supplier by the Department of Defense and won business in emergency services and security agencies.

Skydio announced $ 170 million in financing for Round D last week and said it had an appraisal of more than $ 1 billion.

“DJI makes good hardware, but we are still very early in the market and very primitive compared to what should exist,” Skydio CEO Adam Bry told Reuters.

PHANTOM DRONE SHEETS

When Durscher joined DJI in 2014, the company’s Phantom series was transforming drones from a niche hobby into a popular gadget. He said he was particularly attracted to the chance to bring drones into the kit from the rescue and fire departments.

He said the technological advances of smaller rivals in the past year have been tempting for some public security agencies, who may say “let’s go with this drone now so we don’t have to deal with data security”.

He added that the change could come as government departments and companies seek to replace fleets of drones that are nearing the end of their life cycles.

A fleet is expected to last three to four years, according to Benowitz.

Durscher and several other officials compared DJI’s internal rivalry over projects to “Game of Thrones,” the TV series where rival factions vie for power. He said that this resulted in a revolving door for Shenzhen bosses and that he reported to 12 different managers in his six years at the company.

Durscher left DJI after other top executives in North America last year, including business development director Cynthia Huang.

Huang, who now works with Durscher at Auterion, said he was increasingly frustrated because he felt that DJI was not able to meet all the growing demands of the corporate market. In addition, she said, job cuts in the past year have increased the reasons why she decided to leave. The losses in Palo Alto, Burbank and New York followed cuts to DJI’s global sales and marketing teams, reported by Reuters in August.

“Some of the people we lost in these layoffs didn’t make sense,” said Huang, who was hired in 2018 to take the lead in building DJI’s corporate business in North America. “The continued exodus of talent has been disheartening.”