M&A Activity Jumps As 3D Printing Market Hits Stride
The Next Big Thing in technology seems to be arriving almost everywhere: affordable electric cars, compact nuclear power plants, wearable computing devices ...
In manufacturing, the game-changing advance appears to be in devices called three-dimensional printers.
"Remember when we said there'd be a PC on every desktop? How about this -- a factory on every desktop!" wrote Shanen Boettcher, manager ofMicrosoft 's ( MSFT ) Startup Business Group, in a recent blog post.
Microsoft,Amazon ( AMZN ) andStaples ( SPLS ) are just a few of the big companies that recently jumped on the 3D printing train. Amazon and Staples retail the devices. Microsoft, at a developers' conference on June 26, said its new Windows 8.1 operating system, due out later this year, will support 3D printers.
Boettcher blogged that making 3D objects is as easy as printing a document. He noted some market analysts predict the global 3D printing market will reach $3.1 billion by 2016.
The smaller versions of the machines are similar to, but are not really desktop printers. Standard printers spit out 2D documents on paper. 3D printing, also known as additive printing, uses software as a blueprint to model real-world three-dimensional objects -- any prototype or gewgaw the user is able to design.
There are several processes. Unlike laser cutters, which are widely used in manufacturing to cut patterns and sculpt objects, 3D printers place thin layers of materials such as plastic or metal one on top of another to build the object.
3D printers have been made possible by a well-developed and still rapidly advancing realm of computer-assisted design programs. The printers use a digital description of an item -- precise height, depth, weight and width -- along with color and shape specifications from such programs to bring objects to life.
Auto Industry Roots
Industrial 3D printers that sell for $1 million have been around since the mid-1980s. Automakers and other industries were among the early adopters, using the devices to make prototypes and experimental parts and for limited production runs.
"The largest companies that were struggling with manufacturing happened to be automotive," in the 1980s,3D Systems ( DDD ) Chief Marketing Officer Cathy Lewis told IBD.
Founded in 1986, 3D printer maker 3D Systems almost from the first was a global company, Lewis said, because it sold to global industries. Today just over 50% of its revenue comes from outside the U.S., mainly Europe and Japan.
"But our greatest growth opportunity recently has been in the BRIC (Brazil, Russia, India and China) countries. We are seeing a lot of growth and we continue to expand in those geographies."
The printers are fueling innovation and helping spark a renaissance in U.S. and global manufacturing. Price tags on the devices have fallen to a point where small businesses and consumers can buy desktop models for office and home starting under $1,000. They're easy to use, and the number of individual things these machines can make is rapidly multiplying.
Merging Into The Mainstream
3D Systems andStratasys ( SSYS ) are the market leaders, although smaller U.S., Japanese and European companies are nipping at their heels. China has a couple of early entries too.
3D Systems has annual sales of about $378 million, vs. $267 million for Stratasys.
NewcomerExOne (XONE), which sold just 13 3D printers last year, launched an initial public offering on Feb. 18 at $18 a share. ExOne's 3D printers, unlike those of some rivals, can make objects from a variety of materials, including metal, plastic and glass.
Its shares have shot up more than 260% in the five months since its IPO.
As 3D printing takes its place as a mainstream technology, the maturing market is consolidating. Both Stratasys and 3D Systems have made multiple acquisitions in recent years.
Both announced key deals last month.
Stratasys, mainly an industrial 3D printer maker, said on June 19 it would pay 4.76 mil shares for its consumer-focused peer MakerBot Industries, which sells printers like the easy-to-use Thing-O-Matic to individuals as well as corporate customers such asGeneral Electric (GE), NASA andLockheed Martin (LMT).
The deal was worth about $403 million, plus $201 million in possible incentive payments.
Stratasys CEO David Reis said at a June 20 press conference, "MakerBot has been truly the next industrial evolution within the desktop 3D printing segment. We believe this trend is similar to the evolution of personal computers."
Reis, former CEO of Israel-based 3D printer maker Objet, took the reins from Stratasys founder and Chairman Scott Crump in December when the merger of those companies was concluded.
Amazon.com CEO Jeff Bezos was a big MakerBot investor. And e-commerce leader Amazon joined the 3D printing craze last month, opening an online store to sell 3D printers and supplies.
The store features printers such as 3D Systems' Cube home 3D printers, as well as devices from lesser-known makers such as Afinia and Airwolf, and China's FlashForge and Mbot3D.
Meanwhile, 3D Systems, which has both industrial and consumer offerings, on June 12 announced an agreement to buy 80% of Phenix Systems, a French maker of 3D printers able to fashion metal objects.
"We looked at Phenix Systems' lines and they had every capability we wanted," Lewis said. "It was an opportunity to do metal printing. By adding Phenix, we will cover 99% of apps."
3D Systems plans to buy the rest of the company by the end of the year.
The 3D printer market may be mainstream and maturing, but most industry watchers agree the technology is still in early stages. Current printers can make a staggering array of products from an increasing number of materials.
But objects are still relatively small, and are produced from a single material.
Small businesses use them to do one-offs or small production runs. People have them on their home and office desks. And they're becoming a hit in the so-called "hobbyist" market, where crafty folks are learning to use them for fun or for small home business.
Investors are most excited about the hobbyist and metals markets, according to Canaccord Genuity analyst Bobby Burleson.
"Those markets are bookends," Burleson told IBD. "Hobbyist is low-end, low-functionality printers costing around $1,000. Metal printers are very sophisticated, very expensive systems costing $800,000 or $1 million."
Both markets are growing at 50% or more a year. "Ultimately, there's a huge opportunity," Burleson said.
The expanding list of items 3D printers produce include jewelry and clothing -- fashion designer Melinda Looi held the first 3D printed fashion show in Malaysia last month.
Custom 3D printed prosthetics are helping bring down the cost to help disabled people regain mobility. In January, Stratasys touted its "magic arms" WREX exoskeleton, which enabled 4-year-old Emma Lavelle to overcome a congenital disorder and use her arms for the first time.
And a new program that may or may not be popular with friends and relatives lets users print figurines with the image of the face of someone they know, taken by a digital camera, smartphone or tablet.
Looking ahead, both 3D Systems' Lewis and analyst Burleson said one of the hottest markets for 3D printers this year is likely to be education.
"In the K-12 education segment, they're talking about buying 3D printers. They want to use them as a lab for students to build things, just like the woodworking shops in high schools today," Burleson said.
In Pursuit Of Recurring Revenue
Don't confuse 3D printers with products from companies such as industrial prototype makerProto Labs (PRLB). Proto Labs uses more traditional methods such as computer-controlled machining and injection molding to make parts for electronics companies.
And don't get overexcited and dream that 3D printing will replace traditional manufacturing.
Microsoft's Boettcher says the technology has its limits, and that traditional manufacturing is more cost-effective. "Instead, people will use 3D printing to make custom creations," he blogged.
Prices for 3D printers are likely to keep falling, however, as Stratasys, 3D Systems and others provide more of the materials companies use in the printers, as well as software apps and training.
3D Systems Investor Relations Director Stacey Witten said the company is incorporating those lower prices into its strategy.
"We definitely are on a razor-and-blade model," Witten said, referring to the business model pioneered by safety razor makers like Gillette, which sells low-cost razors and makes the bulk of its revenue selling blades and shaving accessories.
The company's long-term goal, Witten said, is to have 75% to 80% of its revenue be recurring, coming from materials and service.