By David Kirton
SHENZHEN, China (Reuters) - Chinese drone giant DJI Technology Co Ltd built up such a successful U.S. business over the past decade that it almost drove all competitors out of the market.
Yet its North American operations have been hit by internal ructions in recent weeks and months, with a raft of staff cuts and departures, according to interviews with more than two dozen current and former employees.
The loss of key managers, some of who have joined rivals, has compounded problems caused by U.S. government restrictions on Chinese companies, and raised the once-remote prospect of DJI's dominance being eroded, said four of the people, including two senior executives who were at the company until late 2020.
About a third of DJI's 200-strong team in the region was laid off or resigned last year, from offices in Palo Alto, Burbank and New York, according to three former and one current employee.
In February this year, DJI's head of U.S. R&D left and the company laid off the remaining R&D staff, numbering roughly 10 people, at its flagship U.S. research centre in California's Palo Alto, four people said.
DJI, founded and run by billionaire Frank Wang, said it made the difficult decision to reduce staffing in Palo Alto to reflect the company's "evolving needs".
"We thank the affected employees for their contributions and remain committed to our customers and partners," it said, adding that its North American sales were growing strongly.
"Despite misleading claims from competitors, our enterprise customers understand how DJI products provide robust data security. Despite gossip from anonymous sources, DJI is committed to serving the North American market."
It did not comment on the other U.S. staff departures that current and ex-employees spoke of, although it told Reuters last year its global structure was becoming "unwieldy 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, like Huawei and Bytedance.
Staff sources and competitors say the company's brand reach, technical know-how, manufacturing might and sales force mean it won't lose its crown anytime soon in the multi-billion-dollar U.S. and global markets for non-military drones.
But a December order adding the company to the U.S. Commerce Department's "Entity List" along with the closure of its R&D operation in California could affect its ability to serve the needs of U.S. customers, according to three former senior executives and two competitors.
The Commerce Department listing, enacted over allegations including DJI enabled "high-technology surveillance", prohibits the company from buying or using U.S. technology or components.
The same month, Romeo Durscher, DJI's U.S.-based head of public safety, who had played a central role in building the company's business in providing drone technology to non-military U.S. 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 to DJI.
He said he left DJI because he was disheartened by the staff cuts and what he described as internal power struggles between the U.S. team and its China headquarters. He added that the U.S. reorganisation complicated the task in dealing with the fallout from U.S.-China tensions and winning government business.
"It's not an easy decision to leave the market leader that's really far ahead of everyone else," said Durscher, who joined DJI in 2014. "But those internal battles were distracting from the real purpose and in 2020 it got worse ... we lost tremendous talent at DJI and that's very unfortunate."
U.S. SECURITY CONCERNS
Privately held DJI doesn't publish sales figures. The U.S. Department of Defense estimated the American non-military market was worth $4.2 billion last year. Consultancy DroneAnalyst said DJI controlled almost 90% of the consumer market in North America and over 70% of the industrial market.
The December listing by the Commerce Department, and the prohibition on buying U.S. parts, may impact the firm's mobile apps, web servers and some battery and imaging products, said David Benowitz, head of research at DroneAnalyst and a senior figure with DJI's enterprise team, which works with industrial customers, in Shenzhen before he left last summer.
DJI said in December that the ban would not affect U.S. customers' ability to buy and use its products.
The listing followed other official blows. In October, the U.S. Department of the Interior said it would only buy drones from companies okayed by the Department of Defense, which last August published a list of five approved drone suppliers to the federal government - four American and one French.
DJI said there was no "broad-based U.S. government ban on purchasing DJI drones".
"Congress considered that approach last year and rejected it, because ... such a ban would be challenging for many companies and government bodies that rely on drones," it added.
'WE'RE STILL PRIMITIVE'
Benowitz said persisting U.S.-China tensions and the push by Washington to support DJI's rivals could see the company's North American market share decline. He added that, while the federal government comprised a relatively small part of DJI's business, its restrictions could have a "chilling effect", with other buyers worried about tougher measures in the future.
"We're at a point where there are too many market opportunities for one player to dominate," he said.
Yet he added alternatives to DJI were relative minnows, though both policy support and security concerns over Chinese drones had brought them growth in the last year. Competitors to DJI include France's Parrot and California-based Skydio.
Chris Roberts, CEO of Parrot Inc, Americas, said 2020 had been a significant year for the company in the United States, having been named an approved supplier by the Defense Department and won business from emergency services and security agencies.
Skydio announced $170 million in D-round funding last week and said it had a valuation of over $1 billion.
"DJI makes good hardware but we are still very early in the market, and very primitive compared to what ultimately should exist," Skydio CEO Adam Bry told Reuters.
PHANTOM DRONE FLEETS
When Durscher joined DJI back in 2014, the company's Phantom series was transforming drones from a niche hobby to a mainstream gadget. He said he was particularly drawn by the chance to bring drones into the kit of fire and rescue departments.
He said the technological advances of smaller rivals in the last year were tempting for some public-safety agencies, who might say "let's go with this drone now so we don't have to deal with the data security".
He added that change could come as government departments and companies looked to replace drone fleets that are nearing the end of their life cycles.
A fleet is typically expected to last three to four years, according to Benowitz.
Durscher and several other staff compared DJI's internal rivalry over projects to "Game of Thrones", the TV series where rival factions vie for power. He said this resulted in a rotating door of Shenzhen bosses, and that he reported to 12 different managers in his six years at the company.
Durscher's departure from DJI followed those of other key executives in North America last year, including director of business development Cynthia Huang.
Huang, who now works with Durscher at Auterion, said she became increasingly frustrated because she felt DJI wasn't able to meet all the growing demands of the enterprise market. Additionally, she said, job cuts over the past year added to the reasons she decided to leave. The losses in Palo Alto, Burbank and New York had followed cuts made to DJI's global sales and marketing teams, which Reuters reported in August.
"Some of the people that we lost in those layoffs, it didn't make sense," said Huang, who was hired in 2018 to take the lead in building DJI's enterprise business in North America. "The continued exodus of talent was discouraging."
(Reporting by David Kirton; Additional reporting by Jane Lee in San Francisco, Alexandra Alper and David Shephardson in Washington; Editing by Pravin Char)
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