3-D Printing, the new buzz

Almost a decade and a half back, internet was the buzz word in the market. The kind of value the internet stocks then created for investors in so little time was completely unheard of in the stock market history. So also the kind of value erosion that happened subsequently was again something that can be compared to a Tsunami wave.

Although not in that scale, the current technology buzz word is 3-D printing. The leaders in the industry, Stratasys Ltd. and 3D Systems Corporation have a combined market cap of close to $9.50 Billion. When we check the financials, the combined revenue of both the companies in 2012 was only $714 million and profit of around $100 million. So the combined market cap of the two companies stands at 13 times the annual revenue and 95 times the profit. Are these stocks expensive and following the internet stocks trend during the dot com boom? Although the answer to this question may not be very straight forward, one point is very clear. Just like the way internet changed the way we communicate or share information, 3-D printing will change the way we manufacture things.

So what is 3-D printing? It is a process of manufacturing a three dimensional object of virtually any shape from a digital model. The digital model can be highly complex and be made using software like CAD/CAM or simply by scanning an existing object. Just like a normal printer prints a picture on a sheet of paper when we give a print command to the computer, here the 3-D printer will make a 3-dimensional object exactly as we find it on our computer screen.  

The 3-D printers use an additive process of manufacturing against a subtractive process being used by traditional manufacturing process. In case of traditional process, certain material is removed from a block of material in form of cutting or drilling to arrive at the desired shape. 3-D printers use very thin layers of material and keep on adding them to reach the desired figure.  Different types of methods are used in this additive process. Some methods melt or soften the material to make the layers, some use material I liquid form and cure it or some use thin layer as input material and then cut the layers to shape and then add those layers.

If assembly line technique of mass production gives us the advantages of lowering the cost and time of production, 3-D printers gives us the flexibility of producing any object of any shape and that too in our living room on our desktop.

Although 3-D printing processes were invented in late 1970s, the printers were originally large in shape, expensive and have limitations in terms of what they could produce. However over the last decade, we have been witnessing tremendous improvement in the technology and also drop in prices of 3-D printers. Fast prototyping, easy and quick manufacturing option, and easy customization are the three most advantages of 3-D printing.

With such advantages of 3-D printers, they have applications both for commercial as well as domestic use. If we think of its applications, probably it has no limit. Virtually each industry has its use, Construction, Medical equipments, Automotive, Aerospace, Dental, Jewelry, Education, Consumer Products, and so on. It will transform the way individuals or organizations work. 

As per Wohler’s report, 3-D printer market will grow from a little over $2 billion in 2012 to around $11 billion in 2020, i.e. a CAGR of 23%. Looking at this opportunity more and more players are entering this field. That will result in further improvement in technology and drop in prices. If both Stratasys and 3D Systems grow at this rate for next seven years, the combined revenue will reach close to $4 billion in 2020. If we assume a net income margin of close to 20%, the present market cap still looks little on the higher side.

So it seems the 3-D printing has enormous potential and it is certainly going to change the way we have lived our lives or the way we have manufactured different products. Although the technology at present has limitations, especially in terms of what it can produce, the future certainly looks promising. But the stocks don’t seem cheap anymore. Apart from Stratasys and 3D Systems, ExOne is the other major player in this hot field.