Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
No technology threatens to upset the current model of production more than that of 3D printing. The company that emerges as the leader in this field will most likely not be the last, but it will blaze the path for others to follow and build businesses that will render so much of our current infrastructure obsolete.
3D Systems (DDD) IPO'd on the New York Stock Exchange in May, 2011 and immediately began implementing an aggressive expansion strategy by first acquiring Alibre Inc, a CAD software developer, for an undisclosed amount. This was followed by more acquisitions during the year, the most notable of which was Huntsman's stereo lithography line, its own competitor that manufactures 3D printers and print materials for $41 million. The company started 2012 with a bang by acquiring more competitors -- Z Corp and Vidar Systems for $135.5 million in January.
So far, DDD has made 16 acquisitions since its listing 18 months ago while its stock has gone up by 145.6%. The total number of acquisitions in the company's life is 31. To finance further expansion, DDD is planning a $100 million share sale. Within a short time, DDD has emerged as the industry leader through its takeovers in its attempt to consolidate the 3D printing industry.
In the last week of November, the DDD launched the ProJet 3500 HDMax and ProJet 3500 CPX Max professional printers, its latest to date. This caused its shares to surge by 12% in a single day. Meanwhile, the company has also developed its latest customized '3D printed hand brace devices' for use in musculoskeletal medicine and are expected to be launched in the second half of 2013. The device aims to significantly improve the experience of orthopedic patients or those suffering from other chronic conditions. It has also entered into a long term agreement with the Smithsonian Institute to provide 3D services and devices.
If You Build It
Following in the footsteps of Amazon's (AMZN) business model that threatened the dominance of conventional big box store chains, such as Wal-Mart (WMT),
DDD is the latest in the disruptive technological chain driving a
revolution, not at the distributor level but at the producer level. With
Amazon, consumers can save their time and fuel by shopping from home,
cross-shopping and outsourcing their travel costs to make their lives
more efficient. Similarly through DDD, 3D printing will also offer cost
and time savings while delivering superior products designed according
to individual's needs. This concept is in its infancy but the
implications are clear; providing consumers a way to buy a made-to-order
leather jacket or - in the extreme -- a new organ.
It is the logical step forward from the current business model whereby non-customized products are manufactured at one place and then shipped around the world. Many of the complaints of the modern political left's critique of capitalism stems from this obviously inefficient model which is an outgrowth of more than 100 years of another shibboleth of the left, central planning of the economy through fiscal and monetary policy. Currency and wage arbitrages are at the heart of the modern globalized production markets - known as globalization -- which were facilitated by cheap oil and exasperated by government management of money, prices and interest rates.
In an age of $15-20 natural gas (per million BTU) being paid by most of the emerging world, especially Asia, and $110 per barrel oil, that model is breaking down. Throw in the admixture of the internet, mobile computing devices and 3D printing and we are exploring near the opposite pole of Henry Ford's decree that you can have any color Model-T you want as long as it's black. These increasing fuel costs-- which will only increase in the future as Asia and South America's demand per capita renders obsolete the old demand curves-- increase the prices consumer pay for products and we are close to reaching the tipping point where that level of service will be inadequate.
Instant Gratification Takes Too Long
It is the logical step forward from the current business model whereby non-customized products are manufactured at one place and then shipped around the world. Many of the complaints of the modern political left's critique of capitalism stems from this obviously inefficient model which is an outgrowth of more than 100 years of another shibboleth of the left, central planning of the economy through fiscal and monetary policy. Currency and wage arbitrages are at the heart of the modern globalized production markets - known as globalization -- which were facilitated by cheap oil and exasperated by government management of money, prices and interest rates.
In an age of $15-20 natural gas (per million BTU) being paid by most of the emerging world, especially Asia, and $110 per barrel oil, that model is breaking down. Throw in the admixture of the internet, mobile computing devices and 3D printing and we are exploring near the opposite pole of Henry Ford's decree that you can have any color Model-T you want as long as it's black. These increasing fuel costs-- which will only increase in the future as Asia and South America's demand per capita renders obsolete the old demand curves-- increase the prices consumer pay for products and we are close to reaching the tipping point where that level of service will be inadequate.
Instant Gratification Takes Too Long
Consumers are demanding things now. Nike (NYSE:NKE) now allows their customers to build their own sneakers. Shipping companies like FedEx (FDX) and the airline industry are feeling these effects in their bottom lines and struggling to pass on costs to them. Boeing (BA) and Airbus are not selling anymore old-school 747's, but rather are taking massive orders from smaller, regional carriers like AirAsia and Lion Air
for their more fuel-efficient planes. Unless and until we have a
similar disruptive breakthrough in air travel like that implied by the Synergy Aircraft
- which is a long way from being commercially interesting - the cost of
air travel and air shipping will become prohibitive for a greater
number of activities.
The promise of 3-D printing is that it extends the beauty of the original Toyota Production System - known now as Kaizen Ordering or Lean Manufacturing-- which was efficient and flexible, capable of transmitting a consumer's desires directly to the factory floor. It all comes down to the higher opportunity cost for the buyer and entrepreneurial risk for the producer, and in my opinion, the conventional production practices are simply not sustainable in the long run. The push towards localized printing is a classic spontaneous mutation due to market forces.
There are plenty of smaller private companies in 3D-printing such as Asiga, Buildatron, Essential Dynamics and Formlabs but DDD's main competition comes from Stratasys (SSYS). Several innovations in this industry have come from these smaller players, such as Formlabs's cheaper alternative 3D printer. Other conventional printing giants such as HP (HPQ), have failed to make a name for themselves in 3D printing. In fact, the struggling HP took a step backwards when it ended its manufacturing and distribution contract with Stratasys in August-2012 and its consumer imaging division, which once dominated the visual production end-user tools of the world is shrinking at a double-digit rate. Meanwhile, Stratasys is only getting bigger with the merger with Objet Ltd being finalized.
Over
the year, DDD's quarterly income has almost doubled while Stratasys's
has fallen by 12% while their revenues have increased by 57.3% and 24.4%
respectively. The stocks of both the companies have skyrocketed this
year and at this stage will be very volatile. But, the market always
heavily values the future potential on disruptive technology. All talk
of a bubble is very pre-mature given the infancy of this industry.
Nonetheless, the two companies are operating in an industry that seeks to transform the production process and has far reaching implications in almost every other sector. Forward thinking investors should be willing to take a small position in this sector.
The promise of 3-D printing is that it extends the beauty of the original Toyota Production System - known now as Kaizen Ordering or Lean Manufacturing-- which was efficient and flexible, capable of transmitting a consumer's desires directly to the factory floor. It all comes down to the higher opportunity cost for the buyer and entrepreneurial risk for the producer, and in my opinion, the conventional production practices are simply not sustainable in the long run. The push towards localized printing is a classic spontaneous mutation due to market forces.
There are plenty of smaller private companies in 3D-printing such as Asiga, Buildatron, Essential Dynamics and Formlabs but DDD's main competition comes from Stratasys (SSYS). Several innovations in this industry have come from these smaller players, such as Formlabs's cheaper alternative 3D printer. Other conventional printing giants such as HP (HPQ), have failed to make a name for themselves in 3D printing. In fact, the struggling HP took a step backwards when it ended its manufacturing and distribution contract with Stratasys in August-2012 and its consumer imaging division, which once dominated the visual production end-user tools of the world is shrinking at a double-digit rate. Meanwhile, Stratasys is only getting bigger with the merger with Objet Ltd being finalized.
| DDD | SSYS | |
| Stock YTD | 243.21% | 158.43% |
| Beta | 2.22 | 1.29 |
| P/E | 70.34 | 92.31 |
| EPS | 0.68 | 0.85 |
| Yield | N/A | N/A |
| ROA | 7.72% | 8.67% |
| ROE | 11.16% | 9.74% |
Nonetheless, the two companies are operating in an industry that seeks to transform the production process and has far reaching implications in almost every other sector. Forward thinking investors should be willing to take a small position in this sector.
