By Niklas K. Oskarsson and David R. Kenerson, Jr.
3-D printing is a fast evolving industry with high margins serving a wide range of customers. Current printer prices range from around $300 for home devices to six digit price tags on high end industrial machines. We expect the industry to grow roughly at a 30% annual clip through the end of the decade with the leading firms generating gross and net margins in the 50% and high single digit ranges, respectively, over the next few years. Slicing the major players revenue streams into three segments, we foresee their printing materials producing the best margins going forward since the companies are effectively reducing competition by eliminating printer warranties if materials from other manufacturers are used. Within the print on demand segment we suspect the industry leaders will find it more challenging to defend their margins since these services can easily be replicated by any store with 3-D printers. Finally, we also anticipate the competitive landscape to tighten within the printer segment as Hewlett Packard and other major corporations enter the industry.
Having said that, with the entrance of large cap, cash flooded technology companies, specu-lative take over premiums may creep into the existing pure players’ valuations and it may also raise the overall awareness of the industry. Moreover, the fact that firms such as Siemens, GE, and Boeing are already using 3-D printers to produce anything from turbine parts to fuel nozzles adds credibility to the industry as a whole and hints at its potential to become a real disruptive force.
Until the printing speed accelerates and material costs come down, we don’t expect additive manufacturing (3-D printing) to challenge subtractive (traditional) manufacturing for mass produced products. Instead, we anticipate additive manufacturing utilization to rise significantly within the prototype, one-off, replacement, low volume, and customized part type of production. As a result, the end markets best suited for 3-D printing are the healthcare, aerospace, and automobile parts industries. 3-D printing eliminates, for example, the need to store old model replacement parts for automobiles and airplanes. Within healthcare, already more than 90% of all hearing aid shells are 3-D printed and in the dental field braces and crowns can now be 3-D printed. Knee and hip components are also being 3-D printed and scientists forecast that the actual printing of human organs may only be a decade away.
Other important benefits of 3-D printing are that it reduces the need for retooling of machines, minimizes the percentage of the original raw materials that are turned into scrap, and can improve the quality of the products produced. According to GE, the subtractive (cutting and drilling) manufacturing process it previously used to produce certain metal parts required almost 2.7 times more raw material inputs than their current additive manufacturing techniques. The company also estimates that it is able to make parts that are five times more durable and significantly lighter using 3-D printing machines than previous manufacturing techniques.
It’s worth keeping an eye on this growing industry, and the companies that enter the market.
The information based here represents the judgments and opinions of the management of Virginia Global Asset Management and not intended as financial advice.