Amazon’s drone business can’t get off the ground as regulations, weak demand stymie progress
David Carbon, vice president of Prime Air at Amazon.com Inc., speaks during the Delivering the Future event at the Amazon Robotics Innovation Hub in Westborough, Massachusetts, US, on Thursday, Nov. 10, 2022.
Bloomberg | Bloomberg | Getty Images
In mid-January, Amazon’s drone delivery head David Carbon sat down for his weekly “AC/DC” video address to employees, where he gives the latest updates on Prime Air.
The acronym stands for A Coffee with David Carbon, and the event followed a very busy end to 2022. A decade after Prime Air’s launch, Amazon was starting drone deliveries in two small markets, bringing one of founder Jeff Bezos’ dreams closer to reality.
In the video, which was obtained by CNBC, Carbon told employees that Prime Air had recently kicked off durability and reliability (D&R) testing, a key federal regulatory requirement needed to prove Amazon’s drones can fly over people and towns.
“We started D&R and we’re into D&R as of the time of this filming by about 12 flights,” Carbon said. “So, really excited to get that behind us.”
However, there’s a cavernous gap between starting the process and finishing it, and employees could be forgiven for expressing skepticism.
Since at least last March, Carbon has been telling Prime Air staffers that D&R testing is underway, according to people who worked on the project and requested anonymity because they aren’t authorized to discuss it. He even had baseball caps made that said “D&R 2022” with the Prime Air logo on them.
But the Federal Aviation Administration didn’t provide clearance for testing until December, and the company began the campaign shortly after, in January of this year, Amazon said. Before a broader rollout, Prime Air must complete several hundred hours of flying without any incidents and then submit that data to the FAA, which oversees the approval process for commercial deliveries.
That all stands in the way of Prime Air’s expansion and its efforts to achieve Amazon’s wildly ambitious goal of whisking food, medicine and household products to shoppers’ doorsteps in 30 minutes or less.
Bezos predicted a decade ago that a fleet of Amazon drones would take to the skies in about five years. But as of now, drone delivery is restricted to two test markets — College Station, Texas, and Lockeford, California, a town of about 3,500 people located south of Sacramento.
Even in those hand-picked areas, operations have been hamstrung by FAA restrictions that prohibit the service from flying over people or roads, according to government records. That comes after years of challenges with crashes, missed deadlines and high turnover.
So, while Prime Air has signed up about 1,400 customers for the service between the two sites, it can only deliver to a handful of homes, three former employees said. In all, CNBC spoke to seven current and former Prime Air employees who said continued friction between Amazon and the FAA has slowed progress in getting drone delivery off the ground. They asked to remain anonymous because they weren’t authorized to speak on the matter.
Amazon told CNBC that thousands of residents have expressed interest in its drone-delivery service. The company said it’s making deliveries to a limited number of customers, with plans to expand over time.
CEO Andy Jassy, who succeeded Bezos in mid-2021, hasn’t talked a lot about Prime Air in public. He’s got much bigger problems to solve as Amazon navigates a period of deep cost cuts while trying to reaccelerate its business after revenue growth in 2022 was the slowest in the company’s quarter century on the public market.
But Jassy also wants to maintain a culture that’s thrived on big bets and risk-taking. His leadership circle, known as the S-team had previously set a goal of beginning drone deliveries in two locations by the end of 2022, according to two employees.
In January, a significant number of Prime Air workers were let go as part of the largest round of layoffs in Amazon’s history, totaling more than 18,000 people, CNBC previously reported. Prime Air sites in Lockeford, College Station and Pendleton, Oregon, were all hit by the job cuts, further straining operations.
The Lockeford site is now down to one pilot certified to operate commercial flights, a former employee said, so days after the layoffs were announced, Amazon flew a staffer there from College Station to help with deliveries.
Not that there’s much activity. Employees told CNBC that the Lockeford location can only deliver to two homes, which are located next door to one another and sit less than a mile from Amazon’s facility. Some details of the FAA restrictions were previously reported by The Information and Business Insider.
Employees who remain after the layoffs told CNBC that morale in the division has continued to sink since the cuts. With more work to do and less clarity on their parent company’s ongoing commitment to the mission, some are saying that they and their colleagues have started searching for jobs.
Maria Boschetti, an Amazon spokesperson, said in a statement that the layoffs and delays experienced by Prime Air haven’t affected its long-term plans for deliveries. The company is staffed to meet all applicable FAA requirements for safe operations and safety standards, she said.
“We’re as excited about it now as we were 10 years ago — but hard things can take time, this is a highly regulated industry, and we’re not immune to changes in the macro environment,” Boschetti said. “We continue to work closely with the FAA, and have a robust testing program and a team of hundreds in place who will continue to meet all regulatory requirements as we move forward and safely bring this service to more customers in more communities.”
Irrational confidence
Prime Air’s FAA problem is not a new phenomenon, and the company has long been working to try to maneuver through restrictions that limit its flying capabilities.
Of particular note was an effort in late 2021 to get a key rule changed. On Nov. 29 of that year, Sean Cassidy, Prime Air’s director of safety, flight operations and regulatory affairs, wrote to the FAA seeking relief from an order that dictates the operational conditions for Amazon’s drones, according to government filings.
Cassidy said in the letter that Amazon’s new MK27-2 drone had several safety upgrades from the earlier model, the MK27, that rendered many of the “conditions and limitations” set by the FAA obsolete. Among the restrictions Amazon sought to remove was a provision prohibiting Prime Air from flying its drones nearby or over people, roads and structures.
A year later, in November 2022, the FAA declined Amazon’s request. The agency said Amazon did not provide sufficient data to show that the MK27-2 could operate safely under those circumstances.
“Full durability and reliability parameters have not been established to permit” flying over or near people, the FAA said.
An Amazon drone operator loads the single shoebox-size box that can fit inside its MK27-2 Prime Air drone
Amazon
It was a surprising setback for Amazon. In early 2022, the company was so confident the FAA would soon lift the restrictions that, according to five employees, it paid for around three dozen staffers to temporarily live in hotels and Airbnbs in the area of Pendleton, a small town in rural eastern Oregon that’s about a three-hour drive from Portland.
Upon lifting of the restrictions, Amazon intended to move the workers to Lockeford and College Station, with the goal of beginning deliveries in the summer of 2022, the employees said.
But by October, the Pendleton crew was still “living out of their suitcases,” one employee said, while the company paid for their room and board.
The following month, Prime Air moved the employees to their respective sites, just in time for the FAA to deny Amazon’s effort for a reprieve. But the company opted to proceed anyway. On Christmas Eve, Carbon announced in a LinkedIn post that Prime Air had made its first deliveries in College Station and Lockeford.
“These are careful first steps that we will turn into giant leaps for our customers over the next number of years,” Carbon wrote.
Boschetti said Prime Air’s delivery team received “extensive training” at the Pendleton flight test facility before they were sent to delivery locations.
Some staffers viewed the launch as a rushed effort and questioned how the service would be able to operate fully without the ability to fly over roads or cars, former employees said.
What’s more, demand from Prime Air’s tiny customer base isn’t exactly soaring. At the Lockeford site, employees have to regularly contact the two households eligible for delivery to remind them to place orders, and Amazon incentivizes them with gift cards, according to two people familiar with the situation.
Meanwhile, Amazon is working on development of its next-generation Prime Air drone called the MK30, and known internally as CX-3. At an event in Boston in November, Carbon unveiled a mockup of the unmanned aircraft, which is supposed to be lighter and quieter than the MK27-2.
As of January, Carbon was still expressing optimism at his weekly AC/DC chats. He said Prime Air has a target to make of 10,000 deliveries this year between its two test sites, even with the D&R campaign unfinished and the FAA limitations firmly in place.
Carbon acknowledged that Prime Air “is not immune to the costs savings” that Jassy is implementing, but he sounded undeterred.
“This year is going to be a big year,” Carbon said. “We’ve got lots going on.”
The MK30, expected to launch in 2024, will have to go through the same regulatory process, including a separate D&R campaign, as well as so-called type certification, an even more rigorous FAA benchmark that allows a company to produce drones at scale.
It’s not a distinction the FAA is quick to hand out. Of all drone makers vying to deliver commercially, only one has received type certification — a startup called Matternet.
WATCH: Amazon CEO Andy jassy on shifting consumer spending habits
Jaque Silva | Nurphoto | Getty Images
Oracle’s Federal Electronic Health Record experienced a nation-wide outage on Tuesday, the Department of Veterans Affairs confirmed to CNBC.
The agency said “all users” of the company’s Federal EHR, including the VA, the Department of Defense, the U.S. Coast Guard and the National Oceanic and Atmospheric Administration, were impacted. Six VA medical centers, 26 community clinics, and remote VA sites experienced disruptions, the agency said.
“Affected VA medical facilities followed standard contingency procedures during the outage to ensure continuity of care for Veterans,” a VA spokesperson said in a statement Thursday.
An electronic health record, or an EHR, is a digital version of a patient’s medical history that’s updated by doctors and nurses. It’s crucial software within the U.S. health-care system, and outages can cause serious disruptions to patient care.
Oracle is one of the largest EHR vendors thanks to it’s $28 billion acquisition of the medical records giant Cerner in 2022.
The company’s Federal EHR initially started experiencing issues at around 8:37 a.m. Eastern on Tuesday, the VA said. Users reported that the software froze and they were unable to access applications. Access was restored and cleared by 2:05 p.m. Eastern that day after Oracle restarted the system.
Oracle is carrying out an investigation to determine what caused the outage, the VA said. Oracle did not immediately respond to CNBC’s request for comment.
The outage marks Oracle’s latest stumble in a thorny, years-long EHR rollout with the VA, which has been marred by patient safety concerns. The agency launched a strategic review of Cerner in 2021, before Oracle’s acquisition, and it temporarily paused deployment of the software in 2023.
Four VA facilities in Michigan are slated to deploy Oracle’s Federal EHR in 2026.
In October, Oracle unveiled a brand-new EHR equipped with fresh cloud and artificial intelligence capabilities. The early adopter program for the software begins this year, though it’s not clear if the VA has plans to utilize it.
Oracle is slated to report third-quarter fiscal 2025 earnings on Monday.
Watch: Oracle CEO Safra Catz: Being number one is very important
Broadcom CEO Hock Tan.
Lucas Jackson | Reuters
Broadcom reported first-quarter earnings on Thursday that topped analysts’ expectations, and the chipmaker offered strong guidance for the current quarter. The stock jumped 16% in extended trading.
Here’s how the company did versus LSEG consensus estimates:
- Earnings per share: $1.60 adjusted vs. $1.49 expected
- Revenue: $14.92 billion vs. $14.61 billion expected
Broadcom said it expects about $14.9 billion in second-quarter revenue, higher than the $14.76 billion forecast by Wall Street analysts. Revenue in the last quarter rose 25% from $11.96 billion a year earlier.
The company said net income increased to $5.5 billion, or $1.14 per share, from $1.33 billion, or 28 cents per share, in the same period last year.
Broadcom’s artificial intelligence business is at the center of the company’s recent boom, which saw its stock price more than double last year. The company is one of the primary data center infrastructure vendors for AI, working both on Google’s custom AI chips as well as providing essential components for networking thousands of other chips together to develop advanced AI software.
Prior to the after-hours pop, the stock was down about 23% so far in 2025, as investors rotate out of risk partly due to concern about President Donald Trump’s tariffs.
Broadcom said it recorded $4.1 billion in AI revenue during the first quarter, which is 77% higher on a year-over-year basis. Those sales are reported as part of Broadcom’s semiconductor solutions business, which grew 11% on an annual basis to $8.21 billion during the quarter.
Broadcom CEO Hock Tan said in a statement that the company expects “continued strength in AI semiconductor revenue,” reaching a projected $4.4 billion in the second quarter.
In December, Broadcom said it was developing custom AI chips with three large cloud customers. Tan said on Thursday that in addition to those customers, it had “deeply engaged” with two other hyperscalers, and are working with four other potential customers to develop their own custom AI chips.
Tan said that Broadcom closely chooses partners for developing custom AI chips who can deploy the resulting product in large quantities. “To put it bluntly, we don’t do it for startups,” Tan said.
The other major part of Broadcom’s revenue comes from its infrastructure software division, which includes software from the company’s acquisition of VMware in the fourth fiscal quarter of 2023. Broadcom said it saw $6.7 billion in software sales during the quarter, a 47% increase on an annual basis.
WATCH: Chip stocks see strong performance punished by markets
Antonio Neri, CEO of Hewlett Packard Enterprise, speaks during an interview with CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, October 20, 2023.
Brendan McDermid | Reuters
Hewlett Packard Enterprise shares slid 19% in extended trading on Thursday as the data center equipment maker issued quarterly and full-year guidance that came in below consensus.
Here’s how the company did in the fiscal first quarter in comparison with LSEG consensus:
- Earnings per share: 49 cents adjusted vs. 49 cents expected
- Revenue: $7.85 billion vs. $7.82 billion expected
HPE’s revenue rose 16% year over year in the quarter ending on Jan. 31, according to a statement. The company was left with profit of $598 million, or 44 cents per share, up from $387 million, or 29 cents per share, in the same quarter a year earlier. The adjusted earnings per share excludes stock-based compensation.
“We could have executed better,” CEO Antonio Neri said on a conference call with analysts. The company had higher than normal inventory for artificial intelligence servers because of a shift to next-generation Blackwell graphics processing units from Nvidia.
The backlog for AI systems rose 29% quarter over quarter to $3.1 billion. Total server revenue totaled $4.29 billion.
HPE dealt with extensive discounting in the market while selling traditional servers during the quarter, finance chief Marie Myers said. As the quarter progressed, HPE moved to limit travel and discretionary spending, she said.
“We expect pricing adjustments may negatively impact top-line growth in the near term,” Myers said.
The company said it would implement a cost-cutting program involving layoffs over the next 18 months that will lead to $350 million in gross savings by the 2027 fiscal year. Around 2,500 employees will be affected, a spokesperson said, representing about 5% of the workforce when also factoring in expected attrition. At the end of October, HPE employed 61,000 people, according to its most recent annual report.
In January, the U.S. Justice Department filed in a federal district court to stop HPE from acquiring Juniper Networks. HPE announced the proposed $14 billion deal in January 2024. The court expects a trial to begin in July, according to the statement. The deal should close by October 2025, HPE said. In December, the company had said the transaction would be done in early 2025.
HPE called for 28 cents to 34 cents in adjusted earnings per share for the fiscal second quarter, with revenue coming in between $7.2 billion and $7.6 billion. Analysts surveyed by LSEG had looked for 50 cents per share on $7.93 billion in revenue.
For the 2025 fiscal year, HPE sees $1.70 to $1.90 in adjusted earnings per share. Analysts polled by LSEG had predicted $2.13 per share.
HPE expects to update its prices to reflect higher expenses from U.S. tariffs, Neri said, adding that he has not perceived any business deterioration from President Donald Trump’s so-called Department of Government Efficiency.
As of Thursday’s close, HPE shares were up about 2% so far in 2025, while the S&P 500 index was down 2%.
WATCH: HPE shares fall more than 10% after mixed earnings, layoff plans
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