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Winners and losers as 3-D printing disrupts market - J.J. Zhang's...

Winners and losers as 3-D printing disrupts the market

By J.J. Zhang

With Nokia’s sale of its devices and services business to Microsoft and BlackBerry in the midst of its own sale, it’s difficult to remember their once-dominating position in the mobile industry. Just a few short years ago, Nokia was responsible for over 50% of smartphone sales and BlackBerry had a market cap of $47 billion.

Of course, it was Apple’s disruptive iPhone that changed everything. Disruptive innovations have a habit of killing the old and shifting entire industries, crowning many winners and losers along the way. But what other potential disruptive innovations are out there? While still in its infancy, 3-D printing certainly displays incredible potential to change the world.

What is 3-D printing?

For those not familiar with 3-D printing, think of “Star Trek’s” fictional replicators. You instruct the computer to make anything you want and it magically appears. Translated into today’s technology, you upload computerized blueprints from your computer to a 3-D printer, a box the size of a microwave or washing machine, which then melts plastic threads (or other materials) bit by bit, layer by layer, similar to adding Lego blocks one on top of another. Eventually, it solidifies into the product you wanted.

Makerbot Industries CEO Bre Pettis holds up a 3-D printed prosthetic hand, as he speaks at the Clinton Global Initiative in New York in September.

What have people managed to print? Many things from simple figurines to plumbing parts are made every day now. But the imagination really is the limit here — there’s been sculptures made from sand, organs made from tissue, cars, guns and even NASA rocket engines.

Why is 3-D printing so potentially disruptive? It democratizes manufacturing capability. Newly democratized capabilities that removed a barrier or high cost of entry have a history of upending industries due to the disappearance of the wide moat or competitive advantage held by the established companies.

For example, home computing and blogs allowed everyday people to write their own content and helped to decimate the traditional printing industry, where printing presses cost millions to make. Widespread software development kits such as free Android programming kits or $99 iOS kits have turned traditional software development and industries like videogames on their heads.

Who gains and loses?

But what will 3-D printing do to today’s industries? While the answer is not yet obvious, potential answers abound. Current common printing technology is limited to small, less sophisticated odds and ends such as small figurines and machinery parts. Those industries are low margin, high economy-of-scale and mainly made by ultracheap foreign labor. While manufacturing small housing supplies for Home Depot or tourist souvenir trinkets for roadside shops could be big business to some, they’re not going to cause a revolution in manufacturing — with the possible exception of China with its disproportionate share of small niche manufacturers.

But the possibilities of 3-D printing really lie in the future, after advances make complicated parts easier to create. Companies that are heavy consumers of parts and supplies such as the auto makers may stand to benefit as their supply-chain cost and infrastructure changes. Already there have been major 3-D printing inroads in fields ranging from automotive to aerospace to education and even health care.

While the 3-D printing industry is still small and fragmented, there are a surprising number of publicly traded companies out there. The two biggest ones are Stratasys /quotes/zigman/13021436/quotes/nls/ssys SSYS +1.00%  , 3D Systems /quotes/zigman/5280737/quotes/nls/ddd DDD -0.07%  , which now sports an almost $6 billion market cap. In comparison, a dominant name in 2D printing, HP , is a $45 billion company.

Another two smaller players are ExOne /quotes/zigman/13926498/quotes/nls/xone XONE -0.63%  , and Voxeljet /quotes/zigman/22041185/quotes/nls/vjet VJET +0.81%  , which just went public. While there are other 3-D printing plays out there, these are some of the more pure and well-known ones.

3D Systems has become one of the largest and most comprehensive 3-D printing companies in the world through numerous acquisitions over the last few years, bringing revenue over $400 million. Stratasys is also large with a $4 billion market cap and over $300 million in revenue, though recent earnings have been mixed so far.

Where is growth headed?

While so far these companies have all displayed great stock performance — DDD up 60% year to date, SSYS up 38%, XONE up 105% from its IPO early this year and VJET up 121% from its IPO last week — they all exhibit incredibly high P/E ratios and debatable fundamentals. SSYS and XONE have recently been losing money though DDD has been a standout so far with positive earnings and EPS growth. Revenue growth is a strong point for all of them, however.

Beyond individual companies, the overall printing industry is poised for strong growth. While only a $1.7 billion market in 2011, it’s expected to more than triple in the next few years. The Gartner research firm recently predicted explosive growth of 75% in shipments next year for lower-cost printers. Figures for more costly business printers are just as high, with estimated enterprise spending going from $325 million in 2013 to $536 million in 2014.

One thing to watch out for with investing in these early pioneers is something many first movers know well; the first out of the gate may not be the one to win the race. After all, where is Lycos or Altavista today compared with the later arriving Google?

That said, the explosive growth in the industry as a whole and their position as early movers also make them prime candidates for acquisitions once larger companies realize belated they’ve missed the boat and flail about desperately to regain relevance. All of these scenarios paint a fairly positive prospect for investing in the 3-D printing industry.

Disclaimer: I do not own any positions in the companies mentioned here or in the 3-D printing field.

J.J. Zhang is a chemical engineer and amateur financial adviser who was the winner in MarketWatch’s second annual World’s Next Great Investing Columnist contest. He runs the blog MarketTech Reports. You can follow him on Twitter @MarketTechRpts .


US : U.S.: Nasdaq

Volume: 2,906

Oct. 22, 2013

Rev. per Employee




Volume: 12,967

Oct. 22, 2013

Rev. per Employee



US : U.S.: Nasdaq

Volume: 2,058

Oct. 22, 2013

Market Cap

$744.15 million

Rev. per Employee




Volume: 2.18m

Oct. 22, 2013

Market Cap

$552.71 million

J.J. Zhang is chemical engineer and amateur financial adviser who was the winner in MarketWatch’s second annual World’s Next Great Investing Columnist contest. He runs the blog MarketTech Reports. You can follow him on Twitter @MarketTechRpts.


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