Aug 4, 2016 | By Alec
We’ve reached a strange moment in the 3D printing industry. On the one hand, business is better than ever. More and more 3D printing startups are appearing all over the place, and all market specialists predict that 3D printing could be huge by 2020. On the other hand, established 3D printing giants Stratasys and 3D Systems have been facing macroeconomic headwinds for more than a year now, with shares losing value and sales stagnating. This is again apparent from the figures for the second quarter of 2016, which both companies are releasing this week. But it seems like both Stratasys and 3D Systems have drawn the same conclusions, and are shifting their focus towards mass production.
Stratasys and 3D Systems are of course, by some order of magnitude, the biggest names in 3D printing. 3D printers by both companies are especially widely used in professional circles. So why then, are they struggling on the stock markets? For the fact is that neither have managed to realize any meaningful revenue growth since the first quarter of 2015. While various reasons can be brought forward, one overarching problem is market saturation: the 3D printing market grew so explosively before 2015, which saw all interested clients adopting the technology. Those clients are still by no means ready to purchase new 3D printers, while attempts to find new audiences have hardly been successful.
Both companies have therefore been working hard to change their strategies and find new avenues for future success. In part, this is being done by reshuffling the executive offices. 3D Systems appointed Vyomesh 'VJ' Joshi as new president and CEO back in April, following the departure of long-term CEO Avi Reichental in October 2015. Stratasys, meanwhile, replaced CEO David Reis with Ilan Levin on July 1.
3D Systems
What’s more, both companies are shifting their focus towards mass production. 3D Systems’ Joshi recently said that the company is evolving from prototyping to ‘light production.’ While previously hoping to bring 3D printers into every home, 3D Systems seems to have finally admitted that the market and the technology aren’t ready for that yet. But Joshi also acknowledged that this shift will take time. “Case by use case, customer by customer, I’ll hold their hand and help them move from prototyping to manufacturing,” he told Bloomberg.
Nonetheless, the Q2 figures (released yesterday) were not as bad as they could have been. While 3D Systems sales dropped for the fourth quarter in a row, the EPS figures were twice as high as expected (12 cents) on Wall Street – sending shares soaring by nearly 18 percent. However, 3D Systems stock was down nearly 1% Thursday morning. Overall, revenue fell by 7 percent to $158 million while the company registered a gross profit margin of 50.9%. The company generated $12.9 million of cash from operations during the quarter and had $176.2 million of cash in hand at the end of June, compared to $155.6 at December 2015.
But the company also focused on the positive. They saw a strong demand for 3D Systems’ health care solutions and software, while material orders grew as well – though not enough to offset decreasing hardware demand. As part of the announcement, Joshi also looked at mass production possibilities. “We see clear opportunities for improvements in 3D printers and on demand manufacturing services as we drive operational excellence and focus on providing reliable end-to-end solutions,” he said. “We are building a comprehensive strategy and assembling a world-class team and organizational structure we believe will enable us to deliver exceptional customer value, drive profitable growth and accelerate digital manufacturing.”
Stratasys
Stratasys’ position is comparable. While the new CEO has hardly the time to shift strategies, Chief Business Officer Josh Claman revealed that the Minnesota-based company has been focusing their R&D efforts on mass production for the past 18 months now. “[Industry changes are happening] even faster than we thought,” he said. “You are going to see a change in the nature of the market from when it was predominantly prototyping.” The new production focus is mostly looking at medical, aerospace and automotive industries.
Stratasys today posted its financial results for the second quarter of 2016. The company reported a loss of $18.5 million in its second quarter. The maker of 3D printers posted Q2 EPS of $0.12, $.06 above the analyst estimate of $0.06. Revenue for Q2 came in at $172.1 million, which fell short of Street forecasts. Six analysts surveyed by Zacks expected $176.7 million. Stratasys stock was down 1.5% in morning trading in the stock market today. "Compared to the first quarter, we observed stronger margins and a substantial increase in non-GAAP operating profit," Stratasys CEO Ilan Levin said in the earnings release. "We believe that our technological platforms and customer reach are unmatched within the industry and represent assets with significant potential for further development."
Illustrating the ongoing struggles in the 3D printer market, 3D Systems and Stratasys both posted their fourth consecutive quarter of year-over-year revenue declines.
A challenger appears
The figures for the two companies are thus quite comparable, and for both a policy shift is probably a good idea. This is further illustrated by HP’s dramatic entry into the 3D printer market with the Jet Fusion 3D printer. Up to ten times faster than competing machines and half as expensive to run, its release coincided a significant slump in demand for 3D Systems and Stratasys 3D printers. Several experts believe that numerous clients who would’ve otherwise purchased one of their machines are now assessing HP’s 3D printer. It is also expected that many resellers will be keen to partner with HP.
But this is also a good thing, because HP might help to expand the market for 3D mass production. Several clients have already said that they will be adopting HP’s 3D printer for exactly that purpose. Aerospace and automotive plastic parts developer Jabil Circuit is one of them. “Parts that are in hundreds or thousands or tens of thousands of units -- it’s cheaper to 3D print them than mold them,” vice president of digital manufacturing John Dulchinos told Bloomberg.
HP’s Chief Technology Officer Shane Wall also argued that mass production 3D printing is among their targets. “It’s one of our anchor businesses we’ll divert money on,” he said. “It’s a very high strategic value for us.” But even so, it is expected to take time before 3D printing becomes a legitimate mass production tool. “Growth of the mass production market isn’t something that can be pushed onto customers,” Canaccord’s Burleson said “[They] have to see value proposition and there has to be continued materials innovation. It’s not going to be an orderly transition.”
What’s more, Stratasys and 3D Systems will also have to change their technology and business models. New material innovations and very visible 3D printing advantages will go a long way to promote this new form of 3D printing. HP’s Jet Fusion 3D printer is doing so already with layered colors that show when parts wear out. And while many 3D printing companies want to dominate their own materials segment, opening up that environment to external partners could please a lot of clients as well and enable more competition. HP is also already open to other material providers, and is even working together with Arkema to qualify new 3D printable materials and make the technology suitable for more applications.
The two biggest companies in the world of 3D printing are thus at something of crossroads, with an eager competitor chasing them down. The second quarter figures clearly show that their current sales strategies won’t allow them to overcome their stagnation, but switching to mass production is obviously not without its risks either. Is the industry ready for mass production 3D printing? And can Stratasys and 3D Systems convince industrial partners that they’re ready for it? Time will tell, and HP seems to be showing everyone how it’s done.
Posted in 3D Printer Company
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