Wired recently had the opportunity to learn what Hewlett-Packard's (NYSE:HPQ) upcoming 3-D printer is all about. It's big, mysterious, places a huge emphasis on materials, and is likely going to be expensive. The $2.2 billion question is whether HP's late entry into the 3-D printing market will dethrone industry giants 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS).
What we know so far
A few months ago, HP CEO Meg Whitman announced that the company will be entering the 3-D printing market by mid-2014. The tech giant plans on focusing on speed and affordability to differentiate itself from the crowd, an area where 3-D printing can be vastly improved. In addition, HP will be developing a homegrown 3-D printing solution rather than making a strategic acquisition.
Unfortunately, Wired wasn't allowed to photograph HP's 3-D printing concept, but described the five-foot tall machine as unlike anything it's seen before, "cobbled together from existing jumbo-scale metal printing parts [components] and some new custom-built equipment that HP isn't ready to talk about." Still, Wired was able to find out that HP will be emphasizing part smoothness and resiliency thanks to a proprietary plastic material, as well as how it views its service center opportunity.
Stairway to smoothness
Given the nature of 3-D printing and how it successively builds an object layer by layer, finished objects often lack smoothness, and instead have a "staircase" quality to them where you can see the individually printed layers. While these ridges can be addressed in post-processing, it could potentially deter some finished goods manufacturing applications from using 3-D printing.
If HP can deliver a material that eliminates or significantly reduces the need for post-processing, it could help expand the uses of 3-D printing and the role it plays in finished goods manufacturing, especially for plastic products that require smoothness. Of course, speed would still be an issue for high production manufacturing runs, but over the long term, the hope is that speed could be improved by several orders of magnitude.
The printer in the cloud
Take a 3-D printer, give the world access to it through the Internet, and you've just given birth to a 3-D printing service center. For now, HP's upcoming 3-D printing business will primarily rely on service centers buying its printers and consumables. Like Shapeways, or 3D Systems' Cubify service, HP wants to focus on service centers that cater to the needs of everyday users who want to benefit from 3-D printing. Although consumer-facing service centers expose the public more to 3-D printing, it may not be the best way for HP to make a big splash in the space, revenue-wise.
The way the industry has been trending, the vast majority of revenue has come from the industrial side of 3-D printing. Last quarter, both 3D Systems' and Stratasys' consumer-facing operations, including consumer 3-D printer sales, only accounted for about 10% of their respective revenues. This tells you that industrial-type customers continue to drive the lion's share of revenue for 3-D printing companies, which isn't surprising when giants like General Electric and Rolls Royce are now turning to 3-D printing to help improve their manufacturing operations. On the consumer side, demand likely won't meaningfully improve unless 3-D printing does for the lives of consumers what it's doing for the operations of industrial manufacturers. There has to be a real tangible benefit for it to really take off with consumers.
You could argue that consumer-service centers are technically industrial customers since they tend to purchase professional-grade printers, which is true, but consumers are ultimately the drivers of demand in this segment. If consumers don't begin to represent a bigger percentage of total 3-D printing revenues, then it's possible that demand for industrial printers in consumer service centers could remain muted.
From what we know, HP's doesn't have any current plans to enter the industrial 3-D printing space, which could end up limiting its earnings potential. At the same time, HP's focus on the consumer service center could give 3-D printing technology more visibility and help it gain traction among consumers. Still, saving money and creating value for industrial customers are the two ways how money is currently being made for 3-D printing companies, which leads me to wonder if HP should rethink its entire 3-D printing strategy.
As far as 3D Systems and Stratasys investors are concerned, there's still no need to worry yet. However, investors should continue to keep an eye on the tech giant's 3-D printing ambitions and how they could affect the investing landscape. After all, HP has more cash than what 3D Systems and Stratasys are worth.
Fool contributor Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems, General Electric Company, and Stratasys and has the following options: short January 2014 $20 puts on 3D Systems. 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.