Meet the Project That Threatens 3D Systems Corporation

Expiring patents potentially have allowed this project to disrupt 3D Systems’ high-end portfolio.

Jun 22, 2014 at 11:33AM

One of 3D Systems' (NYSE:DDD) biggest advantages over the competition is that it offers the most expansive portfolio of 3-D printing technologies in the industry, which allows it to cater to more 3-D printing applications. This gives it the leading market opportunity of any 3-D printing company. However, the company also faces significant challenges as patents around key technologies in its portfolio expire and new competition emerges, often willing to accept less profit.

Patents concerning 3D Systems' selective laser sintering technology, or SLS, expired earlier this year, paving the way for Andreas Bastian's open-source OpenSLS project, which has created its second working SLS 3-D printer for less than $15,000, a fraction of the $500,000-$750,000 a top-line SLS machine can cost. Although the OpenSLS printer isn't intended to be a commercial product in current form, future generations could put significant pricing pressures on 3D Systems and other SLS-entrenched companies.

Opensls Printer R

Source: Andreas Bastian via

The importance of SLS
On a high level, SLS is a layer-by-layer additive manufacturing process that uses a high-power laser to selectively fuse layers of powder together. After the laser finishes its pass, a fresh layer of powder is deposited with a roller and the process is repeated until the object is built. Selective laser sintering technology can be used with a range of materials including nylons, waxes, plastics, sands, composites, and even metals. The second-generation OpenSLS printer has shown success with nylons and waxes, and future iterations are slated to work with metal. Direct metal laser sintering, or DMLS, is often used to distinguish metal-capable SLS 3-D printers from their plastic counterparts. 3D Systems offers a family of SLS and DMLS-capable 3-D printers, the latter of which gives the company an opportunity to compete in the rapidly growing metal 3-D printing segment.

Beyond material versatility, laser sintering is also regarded as the most robust 3-D printing technology available in terms of accuracy and strength. SpaceX CEO Elon Musk recently made 3-D printing history when he debuted the Dragon V2, a next-generation spacecraft featuring the world's first fully DMLS-printed rocket engine.

Traditionally, SLS printers direct a high-powered laser with a series of mirrors, but in order to significantly reduce costs, the OpenSLS printer retrofitted a no-name Chinese laser cutter to behave like a 3-D printer. Below is a video showing the OpenSLS printing a gear with wax.

Source: Andreas Bastian via

Given the lack of precision, it's safe to say that rocket engines won't be 3-D printed on an OpenSLS printer anytime soon. Still, it's important for 3D Systems investors to acknowledge that this proof of concept will likely encourage more development, meaning it's probably only a matter of time until a compelling and more cost-effective SLS printer challenges 3D Systems and other SLS players. Additionally, expired patents in the SLS space open up the possibility for new commercial competition with significant manufacturing expertise to enter the segment. A competitor such as XYZprinting, which has shown a willingness to undercut 3D Systems in the consumer space and has the necessary manufacturing expertise, could introduce a highly competitive SLS machine.

The bigger picture
A few years ago, expiration of patents held by Stratasys around its fused deposition modeling technology sparked the massive influx of consumer 3-D printers that are available on the market today. If history is any indication, 3D Systems investors should expect a similar outcome where new competitors emerge in the SLS space. However, the potential for negative impacts to 3D Systems' underlying business is difficult to determine. Patents are often a tough space to navigate for investors because businesses have the ability to be dynamic and adaptable to change.

On one hand, 3D Systems could continue to innovate in the SLS space by introducing new products that allow it to remain differentiated from the threat of increased competition. On the other hand, 3D Systems could succumb to pricing pressures as a result of increased competition, which could negatively affect the company's overall profitability. Even worse, the price that 3D Systems paid for Phenix Systems, which gave it DMLS capabilities, could ultimately prove to be too high and the company could face potential writedowns in the future.

No matter how this plays out, investors aren't likely to know for a number of years if expiring SLS patents will have a negative impact on 3D Systems' underlying business. 3D Systems investors should continue to monitor new SLS operators, while also watching the company's gross profit margin to determine if 3D Systems' products can remain differentiated in what is sure to become an increasingly crowded space.

Buy these 3-D printing stocks
Believe it or not, 3-D printing is already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive technology to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about 3-D printing being the next great technological innovation, one that will bring an end to "Made In China" for good. Click here!

Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information