The public and investor interest swelling around the 3D printing industry parallels an immense degree of uncertainty. As a result, shares of public companies in the business like 3D Systems (DDD), Stratasys (SSYS), ExOne (XONE), Organovo (ONVO), and Proto Labs (PRLB) have experienced tumultuous volatility. To better discern the future of the promising industry, I recently spoke with Terry Wohlers, of Wohlers Associates. We discuss the opportunities, competitive pressures, and challenges the additive manufacturing industry will face in the future, and how the moving parts could unfold. Mr. Wohlers is head of Wohlers Associates, an independent consulting firm that "provides technical and strategic consulting on the new developments and trends in rapid product development and additive manufacturing." Over 27 years, the company has engaged with more than 190 clients in 23 countries. Mr Wohlers' thoughts have been widely quoted by international media publications such as Bloomberg BusinessWeek, The Economist, Financial Times, The WallStreet Journal, and Scientific American. He has also provided industry advice to 80 investment companies, ranging from hedge funds, to private equity firms, to mutual funds. His firm publishes the applauded annual Wohlers Report, an encompassing dissection of the state of additive manufacturing. Head first then.
Georgi Dimitrov: How do you see the fundamentals of the additive manufacturing industry developing in the future, and what will the industry's growth be like?
Terry Wohlers: The fundamentals are going in many directions at many different levels. We are seeing a lot of parallels to the document printing industry with high-end industrial machines used for newspapers, magazines, posters, and billboards, and then there's the very low cost units in home offices and businesses, and everything in between. In those terms, we begin to gain some understanding of where it might go.
Additive manufacturing and 3D printing (we use the terms interchangeably) are more multi-dimensional because they use many different materials, whereas in the document business, it is really printing onto sheets. In the additive manufacturing industry, making parts and products encompasses everything from automotive, aerospace, and consumer products, and eventually clothing, food, and living tissue. The potential is much greater than the document business in its breadth and depth. It is quite exciting to see some of the early innovations in the nontraditional areas. The printing of bones and soft tissue, is possible now, with complete kidneys and hearts further out, but it is almost certain to happen.
Wohlers Associates reported that the industry grew more than 29% in 2011. We do not yet have data for 2012, but it will be another solid year, and 2013 is shaping up as strong if not stronger. The industry has experienced a compound annual growth rate of 26% over its entire history through 2011, and we expect growth to remain in the strong double digits in the foreseeable future. In May 2012, our industry size forecast for 2015 was $3.7 billion, and $6.5 billion 2019. We've been quite conservative over the 17 years of publishing our annual Wohlers Report and we believe these figures are also conservative. Unanticipated developments could impact these estimates favorably, but it's impossible to know for sure in advance. Behind closed doors, the aerospace and medical industries are certifying new designs that could make a big difference. As these certifications come about, we will see major new designs and assemblies that are made available for these products.
Georgi Dimitrov: 3D printing has been around since the 1980s - what has changed in the past several years in the industry, and has public perception gotten ahead of the industry's tangible development?
Terry Wohlers: The technology has seen machines that are much more reliable, bigger, faster, and deliver better quality with regard to surface finish and mechanical properties. Over the past 10 years, we have seen development of metals go from nothing to 80,000 hip implants manufactured, for example, and some parts for military aircraft and satellites. One of the most important evolutions has been the transition from using the technology purely as a method of modeling and prototyping to the manufacture of parts for real products that customers buy and use. This has come about in recent years.
Is the technology living up to current expectations? The professionals, the people who are using it day in and day out, have definitely seen progress in the technology over the years. At the same time, we certainly see a strong appetite for improvement in system reliability, new versions of systems, systems that can operate in a manufacturing environment with quality controls, and new materials. Those are areas that need attention, and some customers are somewhat frustrated by the lack of progress in these areas.
Then, there is the general public who read about it in USA Today and other mainstream publications. And, there's currently so much media attention on the industry. You'd have to live in a cave to not to know about 3D printing. People are learning, but still know very little about it. When they read an article, is there hype associated with it? Often, yes. Is it by design? Not always, but sometimes. Stories often omit important details. We will be printing living tissue and human organs at some point, but it could be 10 years, 20 years, or even further out. It's not unusual for the media to omit important information such as this. That's the difficulty with the stories being published today.
Georgi Dimitrov: Some have likened the industry to the steam engine, the computer, and the Internet.
Terry Wohlers: Honestly, we don't know. When the steam engine or internet rolled out, we didn't know where they'd go in the future. No one looked ahead and said the steam engine, semiconductor, or Internet would be where they are today. It is difficult to know exactly where 3D printing will go, much like with other industries.
Georgi Dimitrov: the personal 3D market has proliferated in the past several years. Where do you see it going forward?
Terry Wohlers: We have been following this market segment as closely and carefully as possible over the past 5 years. And, it has exceeded our expectations. Many people see themselves as "makers" - DIYers, hobbyists - people who like to get their hands dirty and make things. Those are the current buyers, along with educational institutions. A price between $1000 and $2000 is the sweet spot for this market. And so, I expect there will this market segment for a very long time. But, it is a market segment, and not the entire population. It is not the average individual or family, most of which has little interest in 3D design and manufacturing. Design tools and 3D printers will become much easier to use, but that doesn't mean everyone will use them.
Some believe that we will print our own products in our own home. Instead, I believe that most people will engage with the technology online, just as people do at Amazon.com today. The big difference will be the wide variety of products and new businesses that emerge because cost of entry is so low compared to traditional manufacturing. Will consumers care that these products are made by 3D printing? Most will not because most people only care about good value and that the product performs as advertised. The average individual does not and will not care how it's made. With this notion of printing products at home, such as a handle to replace the broken one on your refrigerator or a piece for your 1957 Chevrolet, the odds are against you. Even if you have a 3D printer at home, it will not offer the right material, color, surface finish, texture, strength properties, and build volume to meet your needs.
Georgi Dimitrov: Consolidation has been a theme in the industry, with roll-ups by 3D Systems, the Stratsys/Objet merger, and even acquisitions by industrial players like GE aviation. Do you see that trend continuing?
Terry Wohlers: Yes. It is inevitable. Companies grow organically, but also through mergers and acquisitions. Also, we can expect to see many more start-ups in parallel with this trend. Thirty-one companies from around the world manufactured at least one professional-grade 3D printer in 2011. That gives you some idea of how many system manufacturers are currently in this space.
We will see more manufacturers, producers of materials, and companies starting new businesses based on entirely new business models. It has never been easier and inexpensive to get into the design and manufacturing business. You or I could start a new business right now with little overhead and paperwork. We could bring together designers or offer our own designs, and then outsource the 3D printing. Almost anyone located almost anywhere can enter this business, so we are living in an exciting time. That's significant when you think about the possibility of tens of thousands of new businesses. This activity could drive prices down, level the playing field, and introduce all kinds of products.
3D printing unleashes a new freedom of design that will drive demand for new machines, materials, and services. At the low end of the cost spectrum, the everyday consumer will want to buy products around this technology because of the new designs that become available. At the very high end, as companies such as GE Aviation certify more designs, demand for more capacity will develop. Most 3D printers currently sold are general purpose machines - they are made for automotive, aerospace, sporting goods, jewelry, and so on. Each of these industries, and the segments within them, has special needs. Consequently, we'll see machines developed for specific markets in the future, this trend is already underway.
Georgi Dimitrov: A lot of focus in the investment community has fallen on public companies like 3D Systems and Stratasys, as well as recent IPO ExOne. How do these pure 3D plays compare to the rest of the industry, and how do they compare to private competitors?
Terry Wohlers: From a product and service offering point of view, I don't see a big difference between the public and privately held companies. The public companies may have more financial resources, but that doesn't always translate to greater R&D investment. Many of the private companies are doing quite well, especially in R&D.
Georgi Dimitrov: With a number of the original additive manufacturing patents having expired, what role will intellectual property play in the future of the industry? Does it provide a competitive moat for established players?
The fact that patents are expiring is interesting. The expiration of one key patent- IP covering fused deposition modeling owned by Stratasys-has allowed the very low end of the market, the open-source RepRap-type machines, to develop. We estimate that more than 23,265 of them were sold in 2011, compared to 6,494 professional-grade, industrial systems. This is an indication of what can happen when a patent expires. It opens the door to others in the industry. The MIT patents are expiring, and the final laser sintering patent from the University of Texas at Austin will expire in mid 2014. Of course, new patents are awarded that need to be considered. Even so, I do believe the expiration of 3D printing patents presents the opportunity for others to consider entering the business with competitive machines and materials. Currently, companies such as Stratasys and 3D Systems have ways of strongly encouraging customers to buy materials exclusively from them.
Georgi Dimitrov: Some analysts have criticized companies in the industry for spending too little on Research and Development. Is investment in this area too low?
Terry Wohlers: I don't want to comment on specific companies, but it would be helpful to see some of them step up spending in R&D. Without competitive pressure, a company can become too relaxed, even complacent, in R&D investment, partly due to the demands for financial resources in other parts of a company. It's tempting to reduce R&D, but it is often short-sighted and can hurt a company in the long term. You need to invest in R&D to offer superior products and make customers happy. I often hear of customers with a desire or need for better systems and materials.
Georgi Dimitrov: A number of companies have developed very different additive manufacturing technologies for different inputs - do you think there will be demand for all of them, or will a market standard emerge?
Terry Wohlers: I doubt anyone can answer that question completely. We can make an educated guess. Thermoplastic materials are being used for most of our everyday products, whether they are parts for cars, planes or phones. 3D printers that use thermoplastic materials currently have an advantage over photopolymer-based systems because photopolymer degrades over time. Photopolymers produce beautiful parts and they are good for presentation models and limited functional prototyping. However, we will not see those parts in planes, cars, or in most other consumer products, unless the chemistry fundamentally changes. With laser sintering and fused deposition modeling from Stratasys (both use thermoplastics), we're seeing many interesting applications in manufacturing.
Georgi Dimitrov: What are some of the challenges the industry faces in the future, and how do you see those challenges being addressed?
Terry Wohlers: There are many. Some companies want much bigger machines. The challenge there is that it is very expensive to make those machines. At a cost of $1 million to $3 million, your market is limited to only a small few that can afford them. That discourages the development of these systems.
Surface finish has been a challenge, although it has improved dramatically over the past few years. Yet, it is still not as good as the finish delivered by traditional approaches such as plastic injection molding. Also, 3D printing cannot match the accuracy of CNC machining, although this level of accuracy is not needed for many types of parts.
Another challenge is our understanding of the characteristics of parts made by 3D printed materials, which often have different physical and mechanical properties. The industry is faced with characterizing how these materials perform. If these materials are not well-documented, people are much less likely to use them. Industry standards are developing, and we have made good progress, but a mountain of work is ahead. Another key challenge is determining when it makes sense to use the technology to manufacture certain parts. Currently, every company must qualify a 3D printing process and material for each design, and this can be expensive. For example, they must consider cost and determine at what quantity it makes sense to manufacture a particular part with 3D printing. Producing thousands of large trash cans with a 3D printer doesn't make sense, but it does for some types of medical parts. A big challenge is that a company must evaluate every design and do a break-even analysis to determine whether it is more or less expensive to produce the part by 3D printing compared to traditional manufacturing.