3D printing technology is estimated to boom in the coming years. General Electric (GE) claims that additive manufacturing will account for about 50% of the company’s total production. Investors widely believe that 3D Systems (DDD, Financial) will benefit the most from this opportunity; however there are many headwinds that await the pioneer of this booming industry. Let’s take look at the factors which may restrict 3D Systems growth.
Unrealistic Expectations
Investors have bid up 3D Systems in the hope that it will revolutionize industrial printing and also that 3D printers will become an everyday household object in the future, but I don't see this happening anytime soon. There are many things you can make with the help of a 3D printer, but people seem to ignore the fact that they will need a very expensive high-end 3D printer, which uses resins or lasers, to print these objects. Many people blindly believe that they will be able to manufacture a range of products on a low-end printer (which costs roughly $800), which is definitely not true.
Complex Usability
3D printing is not a user-friendly process, and you will need a CAD model to print any desired product. It goes without saying that you will need to learn how CAD works in order to make a model, and mastering the program can take years. Therefore, it is certainly not rational to assume that 3D printers will become an everyday household item in the future.
Patent Expiry
Patent expiry is definitely bad news for 3D Systems. Eleven key 3D printing patents are set to expire in 2014, which will open the gates for entry of new companies and give rise to a price war. 3D Systems' gross profit margin is already at the risk of compression in 2014, and the entry of new peers will further put downward pressure on it.
Increasing Competition
Out of all the peers, the impending entry of Hewlett-Packard (HPQ, Financial) is probably 3D Systems' biggest cause of concern. Hewlett-Packard CEO, Meg Whitman recently announced that the company plans to enter the market in June. The company claimed it has solved several of the problems with 3D printing, including its speed, and plans "a big technology announcement in June" about
Acquisition Spree Will End In Disaster
As per a Forbes article, 50% of all acquisitions end up in failure. 3D Systems has acquired close to 45 companies in the last two years. Statistically, this means over 20 of 3D Systems' M&A will fail. Stratasys (SSYS, Financial) has successfully integrated the acquisition of MakerBot into its core business; however, I don't think 3D Systems will be able to do the same. I don't think it is possible for any company to integrate over 40 companies into its core business in less than two years, let alone 3D Systems. Thus, I think 3D Systems' acquisition spree will end in a
Conclusion
3D Systems is due to release its earnings report in the coming days and another EPS miss may send the stock tumbling to the mid-$20 range. Thus, investors should avoid buying 3D Systems, or can even consider shorting it.
