Jan.2, 2014

3D printing was probably one of the most hyped sectors in 2013 given its potential to revolutionize every aspect of our lives. Investing strategies in the 3D printer market will "get more complex in 2014", wrote Canaccord Genuity's Bobby Burleson in a research note Monday. He says the "additive manufacturing" sector will see more European players that are leaders in metal and more pure-play 3D printing service bureaus.

"We believe any preparation for investing in additive manufacturing in 2014 should involve a closer look at three themes: 1) supply chain complexity; 2) divergent service bureau business models; and 3) metal AM processes and growth drivers," he wrote.

1) supply chain complexity

On the first score, Burleson said 3D Systems (DDD) has been aggressive with acquisitions, such as metal 3D printer company Phenix Systems, as well as several software companies. 3D Systems' acquisitions have put pressure on other players, such as Stratasys and Arcam to consolidate.

"We note that DDD historically traded at a 10-20% discount to SSYS. That discount was not only erased in 2013, it flipped on its head, at least temporarily. Following the merger of SSYS with Objet in 2012 and the acquisition of MakerBot this year, investors now expect SSYS to make an acquisition in the metal arena. This is not only to access new growth verticals; we believe there is concern that inaction will only lead to more expensive acquisitions in the future (MakerBot could approach $700M with earn outs). On the subject of a metal acquisition, we expect SSYS to consider differentiated suppliers like Optomec (3D printed antenna among other things) and avoid more commoditized laser sintering companies."


Meanwhile, Swedish-based metals printer supplier Arcam has begun to consolidate beyond its core business. In December, Arcam announced its intent to acquire metal powder supplier AP&C in order to guarantee materials supply to its machine customers as those customers prepare to ramp volume production of aerospace and medical applications. With a simultaneous fresh infusion of cash, Arcam's next likely target is downstream contract manufacturer/service bureau DiSanto."

Burleson says investors that understand the various points in the AM supply chain will be better positioned to anticipate and react to significant industry developments in 2014.

2) divergent service bureau business models

On the service bureau side, Burleson said originally focused on SLA and later FDM machines used in the prototyping process, service bureaus have evolved to include metal capable DMLS machines and other processes. Burleson sees the rise of service bureaus in 2014 and competition will increase in the service area.

"Thus far, the only exposure to publicly traded service bureaus has come from the fact that DDD and SSYS each have significantly large service bureau revenue streams, through Quickparts and Redeye, respectively. We expect that to change in 2014 with the potential IPOs of pure play service bureaus.


"Looking beyond DDD and SSYS, we see several large service bureaus that can add complexity to the discussion of this segment of the AM supply chain in 2014. The complexity comes from their differing approaches to the AM service bureau model. In the US, Solid Concepts is the leading AM service bureau. While founded with SLA machines from DDD, the company has broadened its process portfolio over the years to include SSYS's FDM and Objet machines, DMLS machines from EOS and other AM and conventional technologies.


"Materialise is another important service bureau with a different approach that involves software developed by the company and widely used in the AM industry.


"Shapeways created a closed environment where design tools enable content creation and sharing with enhanced IP protection as a significant draw (we note they appear to be pricing below the industry in an effort to gain share).


Citim is another important service bureau that is lesser known. Based in Germany, they are the only pure play metals AM service bureau and while they have eight machines currently, we expect Citim to expand into the US dramatically from 2014 onward, as they try to fill a void left by the acquisition of Morris Tech by GE. Morris had roughly 20 metal machines at the time of their acquisition, including a couple from Arcam.

3) metal AM processes and growth drivers

And lastly, Burleson expects more companies will focus on the technology to make parts out of metal. He wrote:

"While DMLS from EOS is the dominant process, we note that Arcam is the only stand-alone public metal AM company. We believe additional analyst coverage of Arcam is coming in 2014 as well as IPOs of laser based metal players also based in Europe. Similar to Arcam, we expect metal machine suppliers to focus primarily on titanium parts for aerospace and orthopedic implant customers. We note that DDD has metal capability through its Phenix s Systems acquisition, while SSYS will likely also acquire the technology rather than build it in house."

On the metal front, Mitsubishi Corp., Japan's largest trading company, just announced that it will introduce a metal-forming 3D printer to North America starting in January 2014. Burleson has Stratasys at Buy with $140 price target, ExOne at Buy with $75 price target. Just before Christmas, Canaccord Genuity raised their price target on 3D Systems Corporation to $95 ahead of the Consumer Electronics Show (CES) in Las Vegas.

"While CES in January will launch 2014 with a focus on printers for the consumer, we believe the discussion will shift throughout the year as IPOs and increasing analyst coverage prompt investors to more fully understand and flesh out the AM supply chain, scrutinize various approaches to the AM service bureau, and explore the differences across metal processes as well as incorporate metal AM growth into a sector growth outlook." Burleson wrote.

Posted in 3D Printing Services



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