2013 was another big year of 3D printing with the announcement from the two big jet engine manufacturers, General Electric (GE) and Rolls-Royce (OTC:RRCEF), regarding use of 3D printing for making their future jet engine parts. General Electric's experience with 3D printing is not new; its subsidiary GE Aviation acquired the 3D company Morris Technologies last year. The acquisition was aimed at assisting GE Aviation's in deploying 3D printing technology in its supply chain and meeting the production demand.
GE Aviation recently announced it will use this technology to build more than 85,000 fuel nozzles for its new Leap jet engines. This is part of a $3.5 billion investment that GE Aviation plans to spend in its supply chain with a fraction used to expand its 3D printing division and invest in new technology to meet the production demand. Meanwhile, Rolls-Royce plans to deploy this technology soon for making parts of engines powering passenger jets. This will allow the company to manufacture lighter components quickly, compared to manufacture of bulkier parts produced by traditional methods.
The announcement from both companies denotes the growing usage of this technology in manufacturing, and next year will be even bigger for the 3D printing industry, especially for the market leaders, Stratasys (SSYS) and 3D Systems (DDD). The scenario will be different this time, though, with the entry of Hewlett-Packard (HPQ), which plans to launch its own 3D printer in 2014, thus making the 3D printing market more competitive. As this technology is still maturing, there are enough market opportunities for 3D printer manufacturers and new entrant HP. The combined end-user spending on 3D printers is expected to reach $669 million in 2014, compared to an estimated $412 million in 2013 and $288 million in 2012. The enterprise segment continues to dominate 3D printing spending, with its share expected to increase from $325 million in 2013 to $536 million in 2014, while consumer spending will increase from $87 million in 2013 to $133 million next year.
It is difficult to know whether Stratasys or 3D Systems will lead the additive market in 2014, but Stratasys may have the edge with it having the leading presence in professional 3D printers. In addition, with the acquisition of Makerbot, Stratasys is now among the leading 3D printer provider in the consumer segment as well. Since the acquisition, Makerbot has expanded its product line with the introduction of a $1,400 3D scanner Digitizer, which scans a small object to form a printable 3D file. Makerbot now provides an extended product offering, from scanning to 3D printing, and also has an online sharing 3D printing community (Thingiverse), whereas 3D Systems has also come out with its own affordable 3D scanner named Sense. Thus, both 3D Systems and Stratasys/Makerbot are not missing any chance to capitalize on the new market opportunities and remain competitive in the market.
Stratasys synergies from Makerbot and Objet (acquired last year) will be significant towards the company's top-line growth. Stratasys' revised guidance further substantiates this. For fiscal year 2013, Stratasys expects revenue of $470 million to $490 million (up from previous guidance of $455 million to $480 million). On the low end of this range, revenue is more than double that generated last fiscal year.
In addition, Stratasys has introduced two new products targeting industrial production, which will further add to the growth. Demonstrated during the recent Euromold, 2013, the first product is Nylon 12 material for its Fortus 3D printers. Nylon 12 opens a large market for Stratasys as they are used in end-use production parts, fixtures, and prototyping. Fortus's 3D printer is based on Stratasys's fused deposition modeling, or FDM technology. Therefore, introduction of Nylon 12 material for FDM technology will help create tougher and more flexible Nylon parts than other available additive manufacturing technologies.
Stratasys also plans to add Nylon 11 for aerospace use and Nylon 6 for automotive use. Nylon's use for Selective Laser Sintering technology is a $200 million market, and therefore adding this material for FDM will further expand it. It will also help small- and medium-business users of FDM Fortus 3D printers to use Nylon material for production, as an SLS printer is much more expensive than FDM Fortus 3D printers.
The second addition to Stratasys' product line would be Solidscape contact 600 printer for targeting large aerospace and automotive customers. This product will be available in early 2014, and will help in printing wax cast patterns that can be used in light industrial parts such as turbine blades. Printing wax casting patterns has been used to make artificial teeth, car parts, jewelry, industrial prototypes, etc., but adding aerospace industries will boost the sales of Solidscape printers. The company has improved this new machine by reducing production time by one third. This product can be seen as an important move in capitalizing the current aerospace market opportunity with demand of 3D printers expected to rise.
How 3D Systems is getting ready for another strong fiscal year?
It is too early to write off 3D Systems, as it has a strong presence in the 3D printing market and will post strong fiscal-year sales again. 3D Systems' printers and other products' revenue was up 76% year over year in the third quarter of 2013, while full fiscal year 2013 guidance stays at $500 million to $530 million, up from $353.63 million in 2012. This fiscal year again saw 3D Systems' aggressive acquisition strategy, with nine acquisitions (excluding Xerox's R&D team) during the year. These strategic acquisitions are aimed at expanding 3D Systems' product line by incorporating the acquired technology or know-how in existing offerings and expanding the geographical footprint.
Recently, the company acquired Xerox's (XRX) R&D group, which focuses on solid ink engineering and product design, for $32.5 million in cash. Xerox has been developing 3D Systems' best-selling ProJet series 3D printers. More than 100 engineers and contractors based at the Xerox facility campus in Wilsonville will work as part of 3D Systems' global R&D team; along with this, 3D Systems will also begin its own facility within this Xerox campus. This acquisition will help develop 3D printer manufacturing capabilities. The company has denoted the importance of using solid ink technology over traditional color laser printing, and with strong collaboration with Xerox, the company can further develop its 3D printing technology for solid ink.
These strategic acquisitions have helped 3D Systems be a 3D printing technology leader and establish a strong grip in the market. Therefore, it will be hard for Stratasys to overcome 3D Systems strong growth, though 3D Systems' Selective Laser Printing patent expiration next year can favor Stratasys. This will remove the entry barrier for this lucrative additive manufacturing technology and dramatically increase the availability of SLS printers, mainly low-priced SLS printers from Chinese manufacturers. Though it may put pressure on SLS printer prices, it will be too early to comment on any major impact on 3D Systems' market share; the company has a strong presence, and it will take time for low-cost printers to establish the reliability and trust among 3D printing consumers.
As 3D printing begins another year full of market opportunities, it will be interesting to see the competition between 3D Systems and Stratasys, though they will see entry of the much bigger HP, which is ready to spoil the party.
Stratasys's acquisition synergies are set to put the company in a leading position next year. It will be difficult, however, to be the clear-cut market leader because of 3D Systems' presence. Stratasys stock price continues to appreciate, up 62% YTD; with another strong fiscal year, these positive market sentiments will sustain it for next year. I recommend buying this stock.