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Rise of the 3D printing machines

by Tanya Powley, Manufacturing Correspondent

‘Terminator’ technology threatens manufacturing pioneers

Terminator 2

From a red puddle of liquid plastic, a three-dimensional sphere of connected hexagons and pentagons begins to rise, taking only six minutes to be lifted by mechanical arm into its final geometric form.

It is a phenomenon known as “continuous liquid interface production”, and has been developed by Carbon3D — a Silicon Valley start-up backed by technology investment group Sequoia Capital. But while it was inspired by a scene from the science fiction film Terminator 2, when the T-1000 android rises from a small pool of metallic liquid, the new technique is very much a reality — and set to shake up the 3D printing industry by making the process of forming plastic objects up to 100 times faster.

Since 3D printing, or additive manufacturing, was pioneered in the 1980s, it has been widely expected to revolutionise the manufacturing of complex components, from medical implants to jet engine parts. But growing competition from start-ups, such as Carbon3D, and household names such as HP, is now putting pressure on the tech companies that developed the fledgling industry.

Two of the largest 3D printing companies, US-based 3D Systems and Israel’s Stratasys, are already finding that investors are questioning their continued dominance. 3D Systems shares have fallen 71 per cent, from a high of $96 at the start of 2014 to $28 today. Similarly, Stratasys’s Nasdaq-traded shares are down 61 per cent over the same period, from a high of $136 to $56.

“There’s a possibility that you look at the current crop of public 3D printing companies and they will be like the computer companies of the 1980s — brands that are footnotes in computer history,” warns Carl Bass, chief executive officer at Autodesk, the US-listed software company.

“It’s not obvious that being first to market really means you lead forever.”

Both 3D Systems and Stratasys, as well as their smaller rivals ExOne, Arcam and Voxeljet, have endured a tough 15 months, in which their revenue growth has failed to live up to the hype.

Pieter Busscher, manager of the RobecoSAM Smart Materials fund, says they failed to live up to their stock market valuations. “Essentially, what we saw up until 2014 was a bit of a bubble in the works. Multiples at the end of 2013 were anywhere between 60-100 times earnings.”

Slower than expected revenue growth also coincided with a need to spend more to sustain their competitive positions, notes Scott Schmitz, an analyst at Morgan Stanley.

Over the past three quarters, organic revenue growth at 3D Systems has been between 7-12 per cent, well below guidance of 30 per cent. Stratasys achieved a better organic growth rate of 31 per cent in 2014.

However, it unveiled an accelerated investment plan that is likely to keep operating margins in the 10-14 per cent range for the next couple of years, compared with its own long-term guidance of 18-23 per cent, Mr Schmitz points out.

Nevertheless, these margins and growth rates have still been enough to attract the attention of conventional printing groups. Hewlett-Packard has revealed plans to enter the sector in 2016, with a 3D printer that it claims will be faster and cheaper than existing machines.

Pete Basiliere, an analyst at consultancy Gartner, believes HP is not the only household name eyeing up the space. “By the end of 2016 we’ll see at least three of the big printer makers in the market with their own branded 3D printer,” he predicts.

But with at least a year until these rival products appear, competitors have time to respond, Mr Schmitz says. “HP needs to develop new go-to-market channels as 3D printers target a different audience than PCs and office printers.”

3D Systems and Stratasys have so far tried to maintain their competitive position by buying up other companies, making about 60 acquisitions between them in the past five years — including providers of 3D printing materials, hardware and software. In 2013, Stratasys bought MakerBot, a New York start-up that produces cheap, easy-to-use 3D printers, for about $403m, although it has since booked a $100m impairment charge following disappointing performance.

Both companies require the use of their own materials with their printers, but Weston Twigg, an analyst at Pacific Crest Securities, suggests that in future there will be separate specialists selling printers, software and materials.

He points to Germany’s SLM Solutions, which focuses on making metal printers and partners with various materials companies. It increased its unit orders by 138 per cent in 2014, and its revenue by 56 per cent. Conversely, software provider Autodesk is adopting an open approach by teaming up with materials and printer companies.

Terry Wohlers of Wohlers Associates, a 3D printing consultancy, agrees that it will become increasingly difficult for companies to compete with products that are “closed and locked to prevent third-party products and solutions”.

However, the big incumbents will be reluctant to open up their business models while they can achieve such high profit margins on materials sales. In 2014, 3D Systems achieved a margin of 73 per cent on materials, compared with 36 per cent for its printers.

And demand for 3D printing materials is only going to rise. Gartner expects worldwide shipments of 3D printers to reach 217,350 units in 2015, and then take off to 2.3m by 2018.

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