Imagine that you need a crown for a back molar. You're prepared to have the dentist take an imprint of your tooth then drill it down and cover it with a temporary. Then she likely tells you to come back in three weeks when a rather inferior version of your tooth arrives from the "lab." This is no longer what needs to happen. Instead, new technology allows a dental assistant to flash a laser in your mouth, taking a full 3D image to use in a software program to design and produce a perfect replica of your molar in the office on that same visit. It's glued in place and off you go. Similarly, your mechanic tells you that the hydraulic valve lifters in the engine of your vintage T-bird need replacing and you'll have to look on eBay to see if there are any available since such things aren't manufactured anymore. But that's not what happens. Instead he tells you to wait a minute for him to download the CAD drawings of the needed part into his 3D printer and a few minutes later out it pop ready to install. This is the tectonic shift in design and manufacture that 3D digital technology has enabled. No longer science fiction this technology likely deserves a place in your investment portfolio.
A series of complementary technology products have changed the way people design, create and manufacture products. I first wrote about the investment potential of these technologies in April of 2006 while contributing to TheStreet.com in an article about Stratasys (SSYS). At the time I recommended buying Stratasys as a way to play the coming revolution in manufacturing enabled by 3D printing technology. Shares of the company traded for roughly $16 then and went on a wild ride over the next 5 years, trading up to $28 by September 2007, down to $8 during the financial crisis in 2009 and hitting all-time highs over $50/share in April of this year. I also recommended 3D Systems [TDSC at the time, now (DDD)] as another play on 3D Printing in June 06 and Faro Technologies (FARO), a leading maker of laser 3D scanners in July 06 as a way to capitalize on the complimentary benefits portable 3D laser scanners offered the new world of digital design and manufacture through processes like reverse engineering. The shares of all these companies have done exceptionally well over the period since recommendation, all at least tripling, but technology changes rapidly and this is a good time to assess the potential of the investments going forward given developments in the industry.
The Most Interesting Technology Currently Resides at Private Companies
I no longer hold positions in any of the public listed 3D Printing/Rapid Prototyping or 3D laser scanning companies mentioned above. My research suggests the best new products in these areas are now being developed and offered by private companies. There is a best in class private player in the 3D Printer space called Objet Geometries, based in Israel. Stratasys distributed some of Objet’s 3D printers for a period earlier in the decade. The advantages of Objet’s technology seem rather overwhelming. Objet machines are capable of producing more accurate models than Stratasys with smooth surfaces in one process, something Stratasys machines cannot do. While 3D Systems SLS or SLA machines make nice parts, these machines are more expensive to purchase, operate and maintain and require specific environments and expertise to operate. Replacing a laser in these machines is much more expensive than replacing printer heads in an Objet printer.
There are still niche situations where each player’s products offer advantages, for example SSYS materials have better heat tolerance attributes, more similar to ABS than competitors and necessarily perform better in test situations where that is essential. As investments the panacea for these companies is mass market adoption and the limitations of DDD and SSYS products should hold these companies’ back as competition intensifies. SSYS signed a deal with HP (HPQ) a few years back to focus on entry level markets with its line of Uprint 3D printers, I said at the time this partnership was potentially ill founded and unlikely to succeed. If anything SSYS strength lies at the opposite end of the product spectrum – ultra high end industrial/aerospace products that have very specific material requirements for testing like heat tolerance.
Science Starting to Catch Up with Real World Applications
There are three core complementary pieces of the digital design and manufacture product suite. Now that each piece is speaking the same digital language, users can acquire the different elements (scanning, design, manufacture) as affordability and time permits, while continuing to outsource where required or more efficient. It starts with transitioning to operate in a digital based environment. This requires Computer Aided Design (CAD) software, something like an Autodesk (ADSK) product like AutoCad or Inventor or Solidworks from Dassault Systems (OTCPK:DASTY). There are many smaller players with niche products in this space as well, like privately held Geomagic or Cimatron (CIMT) and Delcam (DLC.L). From this digital starting point doors open for new ways to design products, maintain digital archival/inventory of products, and to react more quickly to changes or designing new products. This eventually offers users the option to take total control of the entire design and manufacture process.
The next essential element for many industries is a 3D laser scanner that allows users to bring real world objects into the CAD/CAM environment quickly for creating and/or redesigning products, often completely eliminating time consuming processes, like model making. While Faro and Hexagon established early leads in portable 3D laser scanning, newer market entrants like Creaform have developed hand held, truly portable, often more affordable products that offer even greater range of uses that are driving future applications and accessibility in areas like reverse engineering.
The next piece of the puzzle is adding manufacturing capability to the system with a 3D printer or other computer directed manufacturing system like CNC for creating a physical product. This group or suite of digital design and manufacture products will gradually infiltrate most or all industries creating a more desirable dynamic where companies more closely control and manage their design and manufacture functions in-house. The onset of this revolution has ushered in a variety of niche providers of all three elements of the digital design and manufacture chain to more specifically cater to each specialized application.
The Digital Dental Environment
The current evolution of digital dentistry is an excellent illustration of how these technologies are impacting industries. A series of new products from companies like privately held 3Shape, Cadent Itero [owned by Align (ALGN)], Sirona (SIRO) and even 3M (MMM) are transforming the way dentists operate. After shifting into the digital realm of dentistry, the individual business operator is gradually able to take greater control of all the elements of the product design and build cycle. The power in digital dentistry is quickly shifting to the 3D laser scanner providers. The scanners allow the dentist to easily move beyond the limitations of physical models and into the more flexible and easier to manage world of CAD/CAM.
Scanners come in two main varieties, intraoral and stationary systems for scanning models into a 3D software platform for reverse engineering or archival/inventory. The intraoral scanners allow dentists to take a chair-side 3D image of a patient’s mouth and work on product solutions directly in a CAD environment with a variety of different software options. Most dentists are mandated to keep archived inventories of patient models for years after creation. Most are currently outsourcing this process of scanning and archival to labs for fees and/or monthly or annual archival fees. As the technology continues to evolve and become easier to manage internally, dentists are looking to avoid these fees by bringing scanning capabilities in-house.
Once dentists begin operating in a digital environment the options to bring greater functionality in-house expand and become a desirable means of reducing costs associated with outsourcing services to dental labs. While 3D printing companies are partnering themselves with scanner providers to offer dentists the benefits of in-housing model creation, it appears one of the greatest beneficiaries of the digital dental manufacture revolution will be more traditional CNC milling machine makers like Cerec (owned by Sirona Dental SIRO), as dentists can take advantage of the ability to reduce reliance on lab services and move more processes in-house to ultimately reduce costs through implementation of the full suite of digital dental design and manufacture processes.
The Immediate Future
This dental industry example nicely demonstrates the way this suite of products works together to drive control of the design and manufacture cycle in house, improving a business’s flexibility and reducing costs. The benefits of this digital design and manufacture revolution will drive adoption of these technologies across a broad range of industries. From an investment standpoint the most impressive growth appears to reside with newer niche focused entrants like 3D scanning technology company 3Shape. I am intrigued by renewed growth opportunities for dental CNC milling machines but truth be told I am a bit late jumping on this band wagon. While it is still early in the digital dental revolution, public companies in the space like Sirona (SIRO) and Align (ALGN) have seen shares surge in recent years and market capitalizations are already larger than I like from historical revenue multiple perspectives. Delcam on the AIM Stock exchange appears to offer some value and I doing some work on the name while considering for purchase. The company is small enough to make a potentially interesting acquisition for an ALGN or SIRO looking to acquire growth.
A New Public 3D Printing Company
This interesting announcement that Objet Geometries is considering a public offering came across my desk last week. At a $500 million valuation, this company may present a compelling value, especially compared with 3D Systems current market cap of over $700 million, and what looks to me like by far best in class technology. Keep you posted.