The 3-D printing (additive manufacturing) industry is expected to grow at a rapid pace in the future. Analysts are of the opinion that the industry can clock annual growth rates of 20%-30% going forward as the technology progresses from building prototypes to parts for end use and also expands into metals. At present, the likes of 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) are among the options to benefit from this industry, but another player in the form of Hewlett-Packard (NYSE:HPQ) is set to join the arena.
Hewlett-Packard, as everyone knows, has long been famous for its personal computers and printing solutions (2-D printing). The company has enjoyed a renaissance ever since CEO Meg Whitman took charge and the stock is up an impressive 75% this year. However, Whitman isn't satisfied yet and plans to enter the 3-D printing market next year.
What Hewlett-Packard might do
Last week, Whitman told the Canalys Channels Forum in Bangkok that HP plans to enter the market for 3-D printers in the middle of next year. According to Whitman, HP is excited about the 3-D printing industry and it aims to ace this business. Hence, the company's research division is looking into the possibilities in this business. Whitman believes that 3-D printing is a natural progression of HP's business, as it has a tradition of making 2-D printers.
The 3-D printing market is expected to triple in the next five years and HP is looking to bring its own set of innovations. According to Whitman, HP will most probably focus on bringing down costs and the time taken to print an object. While there isn't much information as to what 3-D printing product HP will be bringing out, but she said that it will be some "new technology."
However, if HP manages to deliver a 3-D printed object at a lower cost and in lesser time, then it might be able to bring 3-D printing to the mass market. What would aid HP would be the expiry of 3-D printing patents next year and the company won't have to spend a huge amount of time on discovering how to model 3-D objects. And the company can possibly make a dent in 3-D printing if decides to have a go for a few simple reasons.
Why Hewlett-Packard can succeed
First, being a maker of printers and printer inks for long, HP can use its existing expertise and networking in 2-D printing as well. Of course, 3-D printing uses a different kind of "ink" such as plastic filaments or resins. But if HP decides to jump into this area of 3-D printing, it might rely on its existing distribution chain.
Next, with a market cap of nearly $50 billion, HP will be the biggest player in 3-D printing. The company has deep pockets and it can spend heavily on research and development. In the last fiscal year, HP spent almost $3.4 billion on R&D, which is more than half of 3D Systems' total market cap. Hence, with greater resources, HP will be able to spend more on the development of its 3-D printing technology.
Moreover, being a big player, HP can even consider acquiring other players. HP possesses $13.3 billion in cash, which means that it has enough to acquire 3D Systems, Stratasys, and ExOne at once. Also, given that HP has a relationship with several corporate entities to whom it supplies its printer and PC equipment, it can help them manufacture certain products as well. Such a move will create synergy not only for HP, but for its customers as well.
3D Systems needs to watch out
So, HP is quite capable of making a solid move into the 3-D printing market. That's why peers such as 3D Systems will have to be on their toes and continue to innovate. 3D Systems has acquired almost 40 companies in the last two years, with the latest being that of The Sugar Lab. The company has been strengthening its product portfolio by releasing a range of new software and products such as Cube 3D printers.
But 3D Systems is very expensive; featuring a trailing P/E is a whopping 132 while the forward P/E is at 42.83. The company's estimated annual earnings growth rate for the next five years is 21.55%, which seems impressive. 3D Systems has also been shoring up its reseller network across the globe, recently adding Seiko-I Infotech (OTCPK:SEKEF) and SYNNEX (NYSE:SNX) as distributors as it focuses on making the most of the 3-D printing opportunity.
However, if HP does make a jump into the 3-D printing market, investors will have a cheaper and more diversified option to invest in. HP trades at a forward P/E of just 6.52 and also carries a dividend yield of an impressive 2.40%. HP will bring its existing expertise in printing and a big client base, while a strong financial position suggests that the company can make acquisitions if it wants to fast-track its progress in 3-D printing.
If HP decides to battle it out in the 3-D printing market, chances are that it might hurt the existing players due to the reasons outlined above. Moreover, it would make for a better investment opportunity and shares could soar as HP attracts investors from other 3-D printing stocks. Its dividend and diversified business are no doubt big attractions and would play a big part in generating more interest in the stock once Whitman communicates Hewlett-Packard's 3-D plans in more detail.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.