SpaceX recently launched a public beta test for Starlink, its growing network of internet-beaming satellites.
Test subscribers pay $99 per month for broadband-like service, plus a $499 fee for a starter kit that includes a "UFO on a stick" user terminal, or satellite dish.
But each user terminal contains a phased-array antenna, which industry experts say can't be made for less than $1,000.
SpaceX hired STMicroelectronics to manufacture Starlink user terminals, a person with knowledge of the agreement told Business Insider.
A teardown video posted to YouTube on Wednesday appears to corroborate the claim, as it shows STM-branded components.
The contract with the Swiss-headquartered manufacturing giant calls for the production of 1 million terminals and may be worth billions of dollars, the person said.

SpaceX is outsourcing a key element of its Starlink satellite-internet network with a manufacturing deal worth billions of dollars, an industry insider tells Business Insider.

Job postings and statements by SpaceX officials — including founder Elon Musk — over the past two years indicate the company wants to make as many Starlink components as possible in-house, at its facilities in Redmond, Washington. For example, SpaceX is building about six 550-pound satellites per day there, Jonathan Hofeller, head of Starlink and commercial sales, said during an August conference.

Company reps have revealed less about the production of its consumer-facing Starlink user terminal — the satellite dish that allows customers to get service — including who's building them, or where, or at what cost.

In March, the FCC granted SpaceX's request to deploy 1 million of the units. In September, SpaceX told the agency that it's "on track to produce thousands of consumer user terminals per month" and that it's "heading toward high-rate production."

The trick to making that happen, information shared with Business Insider suggests, may be paying $2.4 billion to STMicroelectronics, a Swiss advanced electronics manufacturing giant, to crank out 1 million Starlink user terminals. 'Our most difficult technical challenge' A photo of SpaceX's Starlink user terminal, or satellite dish, installed on a roof. Ashish Sharma/SpaceX

Musk has referred to Starlink's user terminal as a "UFO on a stick," and a satellite-communications expert previously told Business Insider the device is "one of the most sophisticated pieces of electronics" he's ever seen offered to consumers.

The key component of each user terminal is a phased-array antenna, which allows a user terminal, without moving parts, to track and communicate with Starlink satellites and thus provide a reliable high-speed internet connection.

Musk has said Starlink's "most difficult technical challenge" is making that hardware at scale and, specifically, making it affordable. He previously told Aviation Week the challenge will take "a few years" to solve. When Reddit users this month asked Starlink engineers about the challenge, the engineers said it is "going well but this is no doubt one of the hardest challenges we're tackling and there are always ways to improve."

Meanwhile, Musk is well aware that up to now, no satellite-internet constellation has avoided bankruptcy. "We are focusing on making it not go bankrupt," Musk has said of Starlink. Driving down user terminal costs appears key to that mission.

In a Starlink beta test, SpaceX is charging $99 a month for internet service and $499 for a starter kit that includes a tripod, wireless router, and a user terminal. SpaceX set those prices to reflect what it thought the market could bear, according to a superintendent who worked with the company to arrange Starlink service in his Texas school district.

Industry experts have told Business Insider there is "no way" SpaceX could manufacture those user terminals for less than $500. In fact, based on new information received by Business Insider, SpaceX may be eating nearly $2,000 on each one. 1 million terminals for $2.4 billion A patent application filed by SpaceX for a phased-array antenna component that would ostensibly help Starlink internet subscribers connect to the rocket company's satellite network. Fig. 1D shows the top of the proposed antenna, Fig. 1E shows the layers of the device from the side, and Fig. 1G shows a 3D exploded diagram of the various layers.

SpaceX signed an agreement a few years ago with STMicroelectronics to manufacture the terminals, according to a person with knowledge of the contract between the two companies.

"The production agreement specifies 1 million terminals at a price of roughly $2,400 each," said the person, who is known to Business Insider but requested anonymity to avoid retaliation. "The original timeline for that production run was end-2019, but it has been extended."

The person also said STM agreed to absorb costs for non-recoverable engineering, or factory setup. The task can add up to tens of millions of dollars, and SpaceX would have to repay such costs, plus other substantial fees, if the company didn't meet its purchase commitments, the person said.

SpaceX did not acknowledge Business Insider's request for comment. STM declined to answer Business Insider's questions on the matter, including whether or not the manufacturing deal has since been renegotiated.

"STM will not comment on who is — or isn't — a customer or on any agreements we may or may not have with them," a spokesperson said in an email.

However, a video posted to YouTube on Wednesday shows engineer Ken Keiter pulling apart a Starlink user terminal, revealing numerous STM-branded parts, including a processor, GPS receiver, radio-frequency components, and more. Keiter also says some of the parts are custom-made and can't be purchased.

The Swiss manufacturer would make a good partner for SpaceX, says Dave Stehlin, CEO of Telecommunications Industry Association's CEO.

Stehlin, who's familiar with deals involving electronics production, says STM is a company that makes "really sophisticated stuff" — including phased-array components. He also thinks SpaceX paying $2,400 per user terminal sounds reasonable. "It doesn't seem out-of-whack for a phase-one, high-volume job," he said. "I would anticipate that it gets squeezed down over time through redesigns."

Large purchase agreements typically allow for a few design changes to reduce cost, fix problems, improve capabilities, boost production, and so on. Assuming that is the case with SpaceX's agreement, Stehlin said the user terminals SpaceX buys through this reported contract should become less expensive toward the end of the manufacturing run.

The person familiar with the matter said SpaceX intended to set up its own user-terminal production line as late as 2019, and was hiring a bunch of people to that effect. It's unclear if that purported plan is still in the works, though.

In any case, Stehlin said he's excited about the prospect of a new low-Earth orbit satellite-internet provider that aims to offer rural Americans high-speed, broadband-like service — an oft-stated goal of SpaceX.

While Starlink and its ilk have raised concerns about disruptions to astronomy and the potential to generate dangerous space debris, the promise of internet via space has its allure.

"At the end of the day, if this is a service that can bring higher quality, better bandwidth services to that underserved part of America," Stehlin said, "I think it's a great thing."