A Seismic Shift in 3-D Printing Is Already Underway

I'm sure you've noticed that both 3D Systems (NYSE: DDD  ) and Stratasys (NASDAQ: SSYS  ) tanked last night. The reason, apparently, was this Motley Fool article, according to two separate posts that attempted to make sense out of the steep drop. Does that make sense to you? No? Well, welcome to bubble investing.

For all the hype surrounding this technology, the fact is that no one knows how pervasive it will be, or how soon. Just as importantly, no one knows who will be on top if or when 3-D printing matures. Investors swarm into 3D Systems and Stratasys because they're the only real options in a tiny little pond of public companies. Other companies provide the software, or aren't public yet, or are so small as to be glorified penny stocks. As the technology matures, these companies might be left behind.

This is a familiar occurrence for those who have studied the history of technology, particularly computing technology. We so often compare 3-D printing to the original computing revolution that this brief overview of the industry from our free report, "The Next Trillion Dollar Revolution," seems particularly apt:

[In the 1960s], systems called mainframes ruled the computing world. Mainframes were massive computers that would fill an entire room and specialized in very specific tasks. For the period, they were stunningly powerful and capable machines, but they were also prohibitively expensive. At the peak of their popularity in 1973, only 14,000 mainframes were sold.

Why does that sound familiar? According to Wohlers Associates, 6,494 high-quality professional 3-D printers sold in 2011, up from 6,164 printers the year before. These are the machines that can retail for six figures, take up a lot of space, and are typically used only by industrial concerns that can both afford the high price and provide the technical expertise necessary to make full use of them. Consumers have virtually no use for these costly machines, and they tend to sell slowly. But that hasn't stopped the market from flooding into these two companies, echoing what happened with mainframe makers:

Still, despite the limitations of mainframes, investors bid up shares of companies leading the field. IBM (NYSE: IBM  ) , the top seller of mainframes, commanded a market value of $42 billion in 1969; an astounding value for the time. Despite investor enthusiasm, the decline of mainframes would come in the 1970s. On the horizon sat an even more powerful technology: minicomputers.

Right now, we're entering the minicomputer era of 3-D printing, a seismic shift from big and bulky to small and (relatively) accessible. Personal 3-D printers are exciting -- and more importantly, a lot cheaper than the big machines. They can do a lot of what older model 3-D printing "mainframes" can do, just with a smaller print area and with a dramatically lower unit cost. That lower cost has led to a far more rapid rate of adoption -- in 2011, Wohlers reported that 23,265 personal 3-D printers were sold, representing a 289% growth rate from the year before. But they're not the PC of the 3-D printing industry, because they're not yet useful to the average person. What they are, however, is a big threat to the mainframe makers of 3-D: Stratasys and 3D Systems.

Consider this article by my new Foolish colleague Asit Sharma. It's one of the clearest examples of the users of mainframe 3-D printers switching to minicomputer printers that you can find. Ford (NYSE: F  ) is one of the most obvious targets for mainframe 3-D printers. Industrial design and parts engineering are time-consuming, precise processes that makes extensive use of 3-D modeling, and few companies are more dependent on the timeliness and accuracy of their designs than automakers. Previously, Ford would have used one or more of those 6,494 professional 3-D printers, but instead it's now switched to MakerBot's latest Replicators. If Ford has 100 engineers, and each of them gets his own Replicator (at a cost of $2,200), the total cost would still be competitive with one of the better professional printers currently on the market. Whatever the final cost is, you can be sure that Ford's number-crunchers determined that equipping all of its engineers with their own Replicators was a better value than buying 3D Systems' or Stratasys' high-end machines. How long will it be before other key customers arrive at the same conclusion?

One of the key takeaways in the report I quoted earlier is that virtually all of the mainframe manufacturers exited the industry as minicomputers took over -- all except IBM. I don't think that any investor would be ready to claim that either 3D Systems or Stratasys possess either the business scale or the business depth that IBM has exhibited throughout its history, and which it possessed even in 1973. That relative lack of scale puts today's leaders at far greater risk. The entire 3-D printing industry today generates about a tenth of the revenue -- and a tiny fraction of the net income -- as IBM did on its own way back in 1973, at the peak of the mainframe era.

These two companies could adjust and become low-cost leaders. 3D Systems is certainly trying to do so, and has just released the CubeX, which takes direct aim at MakerBot's Replicators. However, it's important to remember that there are not a lot of instances where even a package of personal 3-D printers will generate the same sale price or profit in the aggregate as one massive professional machine. If most customers decide to switch, it'll be for cost considerations. Until the true PC era of 3-D printers arrives, where the average Joe will have one on his desk to make... well, something... the industry will be stuck in its own minicomputer era. The ultimate winners of this seismic shift may not be the ones you've been watching all this time.

If you'd like to read more about the shift from the mainframe to the PC, our free report on "The Next Trillion-Dollar Revolution" has a fascinating look back through history, and it also concludes with a suggestion for one great stock to capitalize on what comes next. Click here to learn more, at no cost.

The Motley Fool also offers an in-depth exclusive report on 3D Systems, in which investors can learn more about the unique risks and opportunities facing this innovative company. If you're invested in 3-D printing, or are considering getting started, then subscribe today for a full year of detailed research.


Read/Post Comments (8) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 29, 2013, at 12:55 PM, Blackthorn wrote:

    Let me start by saying I enjoyed this article and had previously read the posts re: the mini crash of these two stocks, which I own.

    PerhapsIi was a little late to the altar in my buys, at the same time I shouldn't think that MF would be suggesting "bubble stocks" at any time. Isn't there are decided difference between buying companies for the long haul and bubble investing, something that might be called "Hit & Run" investing?

  • Report this Comment On January 29, 2013, at 4:44 PM, pbnew wrote:

    Very annoying that MF puts out a Special Report on how great these companies are and then puts out this article. Seems irresponsible to say the least.

  • Report this Comment On January 29, 2013, at 7:59 PM, kthor wrote:

    @pbnew

    make money both ways up and down ... reason articles gets pump out there

  • Report this Comment On January 29, 2013, at 11:12 PM, AgeOfRobots wrote:

    It appears to me that TMF created a buying opportunity with the 01/25/13 article. Perhaps they took advantage and increased their DDD holdings...

    If you really believe in 3D Systems potential for growth and are in it for the long haul, then the skittish speculators sell off because of a article that mentioned "bubble" won't phase you one bit.

  • Report this Comment On January 30, 2013, at 12:56 PM, hookturn wrote:

    I agree with AgeofRobots. The long term potential of 3D printing hasn't even been understood yet.

    I also find these articles geared to drop the price on new technologies like 3D printing to be grossly unprofessional. The Fool and another web published site led up to these 'analysts (hmm) articles by getting some newbie investors nervous and then dropped the ball. Wonder how many of thier friends jumped onto these stocks after they dropped?

    I am invested in these companies for the long haul and expect their prices to do the same thing that Apples prices did. Go right up, up and up. Wouldn't be surprised to see 3D at 200 by next year at this time. They have a solid cash base and when they are done with their acquisition phase will be selling their products world wide. As is usual it takes time for the World to catch up to new innovative technology.

  • Report this Comment On January 30, 2013, at 1:23 PM, TMFBiggles wrote:

    @ hookturn -

    They already sell their products worldwide. And if you were to do a search of my previous articles referencing 3-D printing, you'd find that I have almost certainly done more than anyone else on this site to help investors understand the long-term potential of this technology.

    That doesn't mean that I'm going to blindly support investing at any price or at any valuation. Apple's P/E kept decreasing as its stock went up because it just kept making a ridiculous amount of money. It's not the same here, where people attach unrealistic expectations to a technology they don't really understand beyond the vague notion that it will somehow destroy a global manufacturing infrastructure that's been expanding for nearly 200 years. Remember, everyone thought the Internet would change everything, too. It did, but most of the stocks you could have bought in 1999 are gone or still far below their peaks.

    - Alex

  • Report this Comment On January 31, 2013, at 1:40 AM, proteus371 wrote:

    I Do Know, 3D printing has been around longer than most think and is quickly jumping in tech and ability. The very basic concept will allow it to jump in leaps> I have been following this technology for about 2 yrs now. Those who may think it too early or just hype are in for a surprise. Right now actual parts are being made more exact , quicker, and cheaper than before in many materials (glass, metal, ceramics,plastics, etc...), and being used in heavy machinery, medical and manufacturing fields with great results

  • Report this Comment On January 31, 2013, at 8:59 PM, LVoss1 wrote:

    We use two of these machines in our business, and hire out build of many other iterations of the spin-offs from this core technology. I agree with the thought that lower priced desktop printers are coming on very strong for the innovative engineers developing products across the board. I disagree that these will replace the 'mainframe' versions primarily made by the SSYS and DDD--they are shifting into quantity build/production quantities while the desktop units take a lead on new designs. The manufacture of parts using this technology is still pricey--but getting cheaper. This isn't a bubble (from my perspective as an engineer interacting with them)--it is a shifting around of application where the printers are eating more and more of the manufactured components.

    I'll hold on to my shares--this started a long time ago, and has come a LONG way--but MAN WHAT UPSIDE! Stereolithography (200k machines) from the 80's made 'toys'. Sure, new desktop printers (2k) are now making these 'toys'--but the big machines have moved from development and concept only into cost competitive production for quantities of complex parts. Their operating space in manufacturing is growing quickly, and with newer metal and virgin material printers the costs are similar to tool room subtractive manufacturing--but in 1/10th the time. Their ability to print 'voids' inside solids often eliminates secondary plug welding or multi-part assemblies-- There is more to 3D print than just innovative new concepting.

    Great article as usual from MF--I'd say they hit all the points, but maybe parallels to mainframe extrapolated those points a little too far. The big machines will be around--just doing different jobs. Check out some online parts manufacturers--they run these big machines 24-7.

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